Mission
WorldatWork Journal strives to:
z Advance the theory, knowledge and practice of total rewards management.
z Contribute to business-strategy development that leads to superior organizational performance.
z Provide an outlet for scholarly total rewards writing and research.
Executive Committee of the Board of Directors
Chair I Tracy J. O. Kofski, CCP HR Director, Baking and Organizational Effectiveness, General Mills
Vice Chair I Sara R. McAuley, CCP Executive Vice President & CHRO, Tygris Commerical Finance Group Inc.
Secretary/Treasurer I David Smith, CCP Vice President, Human Resources, AGL Resources
Past Chair I Margaret “Maggie” Gagliardi, CCP Senior Vice President, Global Compensation & Benefits, American Express Co.
Member I Anne C. Ruddy, CCP, CPCU President, WorldatWork
Editorial
Publisher I Anne C. Ruddy, CCP, CPCU
Executive Editor I Ryan M. Johnson, CCP
Senior Editor I Jean Christofferson
Editor I Robert E. King, [email protected]
Contributing Editors I Andrea Ozias, Carrie Clark
Review Coordinator/Permissions Editor I Marie Finke
Design
Senior Manager, Marketing, Communications and Creative Services I Barry Oleksak
Art Director I Jamie Hernandez
Creative Services Manager I Rebecca Williams Ficker
Senior Graphic Designer I Kris Sotelo
Graphic Designers I Linh La, Melissa Neubauer
Circulation
Circulation Manager I Barbara Krebaum
Som
os P
hoto
grap
hy
WorldatWork (www.worldatwork.org) is a global human resources asso-ciation focused on compensation, benefits, work-life and integrated
total rewards to attract, motivate and retain a talented workforce. Founded in 1955, WorldatWork provides a network of more than 30,000 members and professionals in 75 countries with training, certification, research, confer-ences and community. It has offices in Scottsdale, Arizona, and Washington, D.C.
The WorldatWork group of registered marks includes: WorldatWork®, workspan®, Certified Compensation Professional or CCP®, Certified Benefits Professional® or CBP, Global Remuneration Professional or GRP®, Work-Life Certified Professional or WLCPTM, WorldatWork Society of Certified Professionals®, and Alliance for Work-Life Progress® or AWLP®. WorldatWork Journal, WorldatWork Press and Telework Advisory Group are part of the WorldatWork family.
WorldatWork Management Team
President I Anne C. Ruddy, CCP, CPCU
Vice President, Strategy & Public Relations I Don Griffith
Director, Information Development, Public Affairs and Publishing I Ryan M. Johnson, CCP
Vice President, Professional Development I Bonnie Kabin, CCP
Director, Human Resources I Kip Kipley, CBP, SPHR
Executive Director, AWLP I Kathie Lingle, WLCP
Vice President and CFO I Greg Nelson, CCP, CPA
General Manager, Washington, D.C. I Paul Rowson
Vice President, Marketing and Channel Management I Betty Scharfman
Director, Business Systems I Jennifer Strauel, CCP
WorldatWork Advisory Board Chairs
WorldatWork advisory boards identify current and future strategic issues and topics in compensation, benefits and the work experience. Their suggestions, as well as input from other sources, help determine the technical content of WorldatWork products and programs such as conferences, forums, seminars and publications.
Benefits Advisory Board I Debra A. Weafer, CCP, CBP Vice President, Compensation & Benefits, BlueCross BlueShield of Massachusetts
Compensation Advisory Board I John Bremen Practice Leader, Watson Wyatt
Executive Rewards Advisory Board I Randolph W. Keuch Vice President, Total Rewards, H.J. Heinz
WorldatWork Local Networks I Chad Atwell, CCP Global Compensation Solutions Leader, Hewitt Associates LLC
Global Advisory Board I Fermin A. Diez, CCP Director, AsiaPacific Freescale Semiconductor
This publication is a special benefit of membership in: Global Headquarters: In Canada: WorldatWork P.O. Box 4520 14040 N. Northsight Blvd. Postal Station A Scottsdale, AZ 85260 USA Toronto, ON M5W 4M4
Phone: 480-922-2020; Toll-free: 877-951-9191 Fax: 480-483-8352; Toll-free fax: 866-816-2962 E-mail: [email protected] Web site: www.worldatwork.org
WorldatWork Journal (ISSN 1529-9457) is published quarterly by WorldatWork, 14040 N. Northsight Blvd., Scottsdale, AZ 85260, as a benefit to members, who receive an annual subscription with their membership. Subscriptions in the United States and United States possessions are $130 per year; in other countries sub scriptions are $165 per year. Periodicals postage- paid at Scottsdale, AZ 85251 and at additional offices. POSTMASTER: Send address changes to WorldatWork Journal, 14040 N. Northsight Blvd., Scottsdale, AZ 85260; 480/951-9191. Canada Post (CPC) publication #40823004.
WorldatWork neither endorses any of the products, services or companies ref er enced in this publication nor does it attest to their quality. The views ex pressed in this pub li ca tion are those of the authors and should not be as cribed to the officers, mem bers or other spon sors of WorldatWork or its staff. Noth ing herein is to be construed as an at tempt to aid or hinder the adoption of any pending legislation, regulation or in ter pre tive rule, or as legal, ac count ing, actuarial or oth er such pro fes sion al ad vice.
© 2008 WorldatWork. All rights reserved. WorldatWork: Registered Trademark ® Marca Registrada. Printed in U.S.A. No portion of this publication may be reproduced in any form without express written permission from WorldatWork.
Rejection Rate: Between July 1, 2007 and June 30, 2008, the rejection rate of papers submitted to WorldatWork Journal was 47.7 percent.
Reprints: For bulk reprints contact: Gail Hallman at 800-352-2210, Ext. 8175, or [email protected].
Manuscripts: WorldatWork Journal welcomes manuscripts. See guidelines and review process at www.worldatwork.org, or contact any member of the editorial staff.
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Ensure WorldatWork e-mail communications are delivered directly to your inbox and avoid company blocks and filters. Ask your technology department to allow WorldatWork communications to reach you. For more information call toll free, 877-951-9191.
Third Quarter 2008
Reviewers
WorldatWork Journal thanks the following individuals for reviewing manuscripts during the editorial cycle for the Third Quarter 2008 issue. Subject-matter experts, including members of WorldatWork’s advisory boards, review all manuscripts.
Julie M. Adamik, CCP, CBP, CEBS I Employee Benefits Training & Solutions
Harold N. Altmansberger, CCP I Goalsharing Consulting LLC
Chad R. Atwell, CCP I Hewitt Associates
Dianne Auld, GRP I Pick ‘n Pay
Nathan B. Aycock, CCP I ESPN Inc.
Steven J. Bloomfield, CCP, SPHR, NCC I American Express Incentive Services
Eleni Bottos, CCP, GRP I Salary.com
David W. Cheatham, CCP I The Coca-Cola Co.
William H. Clampitt, CCP, DBA I Clampitt Associates
Christine M. Costello, CCP, MLHR I American Greetings Corp.
Roy W. Cureton Jr., CCP, CEBS, SPHR I Cureton & Associates
Charles M. Csizmar, CCP I CNC Compensation Group
Sherjuana Davis, Ph.D., CCP, GRP, SPHR
Fermin A. Diez, CCP I Freescale Semiconductor
Sean D. Delaney I Microsoft Operations Pte Ltd.
Tracy A. Engstrand I Fabcon
William A. Faris, CCP I Princeton University
Mark S. Fogel, SPHR I Leviton Manufacturing
Nancy K. Grimshaw, CCP, PHR I CedarCrestone
Joi Gardner, CCP, PHR
Peter Jauhal I Winton Capital
Vivian Jennings, CCP, CBP, GRP I Bell Aliant Regional Communications
Becky E. Johnson, CCP, SPHR I RREEF Management Co.
Alan M. Judes I Strategic Remuneration
Deborah Marsh, CCP, CBP, CEBS I Nautilus Inc.
William Parsons I Amalfi Consulting
Mark E. Pittel, CCP I Sullivan, Cotter & Associates Inc.
Hesan A. Quazi, Ph.D. I Nanyang Technological University
Laura Anne Roach, CCP I Xactly Corp.
Roland Ruiz I Hay Group
Esther E. Scarpello, CCP, CBP I University of Nebraska at Omaha
William R. Sheridan, CCP I National Foreign Trade Council Inc.
Gary E. Starzmann, CCP, CBP, GRP, SPHR I Radford Surveys + Consulting
Mariana Uzcategui I Mercer
Guy J. Van Tiggelen, CCP, CBP, CPA I LifeBridge Health
Kurt Wolfer, CCP I Hamilton Sundstrand
Journal
Content
Key
z Organizational Culture z Compensation z Performance & Recognition
z Business Strategy z Benefits z Development & Career Opportunities
z Human Resources Strategy z Work-Life
A Study on Reward Communications:Methods for Improvement of Employee Understanding Dow Scott, Ph.D. I Loyola University Chicago
Richard S. Sperling, CCP I Hay Group
Tom McMullen I Hay Group
Bill Bowbin, CCP I Hay Group
This study covers current communications practices supporting five reward components:
organization reward strategy and philosophy; base pay; base-pay increases; short-term
variable pay; and benefits. A majority of compensation professionals report that their
reward communication practices are ineffective. This paper covers current practice,
perceived effectiveness of practice and recommendations on how to improve reward
communications.
A Framework for Conducting Work-Life Return on InvestmentJessica R. Deares I ICF International
Rebecca R. Harris Mulvaney, Ph.D. I ICF International
Margery Leveen Sher I ICF International
Lance E. Anderson, Ph.D. I ICF International
Jennifer L. Harvey, Ph.D. I ICF International
Return on investment (ROI) is a common calculation for determining a business initia-
tive’s financial benefit; however, it can be difficult to determine an accurate estimate
of ROI for less tangible programs. This paper presents a quantifiable, research-based
approach for measuring the ROI of work-life initiatives. The authors review research that
connects an organization’s work-life benefits to employees’ job attitudes. In turn, these
job attitudes are linked to key outcomes affecting the organization’s bottom line.
Issues and Strategies to Employ and Retain Senior Workers in the United States Lauren Eyster I The Urban Institute
Richard W. Johnson, Ph.D. I The Urban Institute
Eric Toder, Ph.D. I The Urban Institute
This paper reviews the challenges faced by Americans, usually 55 years old and older,
looking for employment and employers that wish to hire them. The paper describes
current employer strategies to hire and retain these workers and identifies current
strategies and practices that could improve employment opportunities.
06
Executive SummariesThird Quarter 2008 | Volume 17 | Number 3
21
31
Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
5
Also
on the
Inside
Third Quarter | 2008
85 Published Research in Total Rewards
88 Facts & Figures
Reward Management In Multinational Enterprises: Global Principles; Local StrategiesRobert J. Greene, Ph.D., GRP, GPHR, CPHRC I Reward $ystems Inc.
This paper examines whether reward systems that have proven to be effective in some
cultures are likely to work as well in other types of cultures. Hypotheses are presented
that can be used to anticipate how effective different methods and processes for
managing performance and rewards might be in multinational enterprises that span
multiple cultures.
A Globally Mobile Workforce: HR’s RoleAdele M. Yeargan, CRP, GMS, GPHR I Hewitt Associates
With the ever-growing number of employees stationed around the world, the design and
administration of benefits and compensation programs for international assignees have
become more complex. This paper focuses on applying a global perspective to talent
and on how this new viewpoint changes the way human-resources professionals need
to manage and leverage mobility when creating workforce strategy plans.
China and Total Rewards: A Look at Workforce Issues and Business StrategyPengpeng Zhou I University of Minnesota
The challenges related to attraction, motivation and retention in China are explored.
In addition, the two basic, and usually misleading, factors influencing the development
of a business strategy in China (a low labor cost and a large workforce) are discussed.
The Successful Implementation of Reward and Recognition Practices at an Insurance Group in AustraliaJeremy Caird I DHL Express
Nuvan Aranwela I Accumulate
This paper reports on the introduction of a reward and recognition (R&R) program
within an insurance company with approximately 10,000 employees. The program was
piloted in two large business units and subsequently implemented across the company.
This paper describes the implementation and change-management activities resulting
in a 30-percent increase in employee satisfaction.
45
55
65
73
Tom McMullenHay Group
W hy do most organizations do a poor job
communicating their reward programs?
According to Hay Group’s global employee
opinion research (the 2008: Hay Group Insight Employee
Opinion Database), only 35 percent of employees under-
stand how their organizations’ reward programs work.
While a .350 batting average is outstanding for a baseball
player, having only 35 percent of employees understand
the manner in which they are paid seems unacceptable.
Many compensation professionals are apt to tout the
meaningful impact that reward programs can have on an
organization’s effectiveness — that is, when employees
understand and are engaged by these programs.
So why aren’t more total rewards professionals “putting
their mouth where their money is?”
It should be a no-brainer to communicate the objectives
of reward programs, the value of the investment in
people and the details of the program. After all, rewards
are often an organization’s largest controllable expense.
Previous research shows that some organizations get it
right, but for the majority, reward communications gener-
ally falls short (Scott, McMullen, Sperling and Bowbin
2007; Scott, Sperling, McMullen and Wallace 2003).
Research shows a relationship between reward-
communications effectiveness and employee engagement
and business results. Mulvey, LeBlanc, Heneman and
A Study on Reward Communications:Methods for Improvement of Employee Understanding
Dow Scott, Ph.D.Loyola University Chicago
Richard S. Sperling, CCPHay Group
z Benefits
Bill Bowbin, CCPHay Group
Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
7 Third Quarter | 2008
McInerney (2002) found a positive correlation between the amount of knowledge
employees have about their reward program and their satisfaction with their job
and the organization. Studies conducted by both Hay Group and Towers Perrin
found that the most effective organizations provide reward information more
frequently and in greater depth than other organizations (McMullen, Stark, Royal
2008 and Gherson 2000). These studies found that high-performing organizations
do a much better job than their respective peer groups in:
z Communicating the purpose and intent of total rewards programs with employees
z Frequently communicating the value of total rewards
z Engaging line managers more directly in reward-communications processes
z Evaluating the success of reward programs.
The authors’ 2007 survey of WorldatWork members found that for some organi-
zations, reward communication was one of the greatest strengths, but for others
it was the greatest weakness (Scott, McMullen, Sperling and Bowbin 2007).
In identifying the most effective characteristic of his organization’s reward program,
survey respondent Bruce Lasko at Avaya said, “Surprisingly, it’s not the value.
It’s the communication. We’ve spent years spending hundreds of millions on
providing benefits that employees didn’t value, understand or even know existed.
Regularly communicating the ‘total value’ … significantly improved the effectiveness
of our rewards programs.”
Any research on reward communications must address the tricky balance between
communicating enough information about reward programs for employees to
understand them and the inevitable need for organizations to keep some informa-
tion private. Proponents of open reward communications contend that without
employee understanding, reward programs will not align or motivate employee
effort toward achieving business objectives. However, even those favoring reward-
program transparency point out that a level of employee privacy must be preserved,
and that a completely open reward program, where everybody knows what
everybody else is paid, could foster jealousy and resentment.
The great interest in reward communications found through the authors’
previous research and in the compensation literature, coupled with age-old debates
concerning the level of pay transparency versus secrecy, became the mandate for
conducting this in-depth study of pay communications. The research project’s
objective was to learn:
z The type of reward information being communicated to employees
z The degree to which survey respondents understand the organization’s reward
strategy and philosophy
z The degree to which survey respondents understand how base pay, pay increases,
incentives and benefits are determined and administered
z The methods used to communicate reward information and the effectiveness
of these methods
z Innovative methods used to communicate reward information.
8 WorldatWork Journal
DATA COLLECTION AND SAMPLE CHARACTERISTICS
A sample of WorldatWork members were invited to participate in this study.
The survey was open from Dec. 1 to Dec. 20, 2007, and took approximately 20 to
30 minutes to complete. While the authors suspected that a long, detailed survey
could diminish the response rate, a brief survey would not provide the insights
being sought regarding reward communications policies and practices. In the end,
the authors were pleased with receiving 394 valid responses. One response was
dropped from the analysis, as only a few questions were answered.
Responses were from a diverse range of industries and organization sizes, as
shown in Figures 1 and Figure 2. Most respondents identified themselves as midlevel
and senior compensation professionals (42 percent and 36 percent, respectively).
Nine percent of respondents were officers or senior-level executives, 9 percent
were emerging or junior-level compensation professionals and 4 percent were
consultants and academics/educators.
FINDINGS
This study covers communications used for five reward components:
z Organization reward strategy and philosophy
z Base pay
z Base-pay increases
z Short-term variable pay
z Benefits.
The survey’s findings varied by reward category. Most respondents (81 percent)
reported that their benefits communications were “effective” or “very effective.”
Fewer, but still more than half, of respondents reported the same positive views
of their communications of base-pay increases or variable pay (59 percent in both
cases). Only 44 percent reported that their base-pay program communications
FIGURE 1 Survey Respondents by Organizational Size (Number of Employees [EEs])
< 1,000 EEs
1,000 to < 5,000 EEs
5,000 to < 20,000 EEs
20,000 + EEs
21%
25%
26%
28%
9 Third Quarter | 2008
were “effective” or “very effective,” and 33 percent had the same view of the
effectiveness of their communication of reward philosophy and strategy.
This is troubling but unsurprising; troubling, because it’s likely that a reward
program’s effectiveness is diminished when employees do not understand its
purpose. Unsurprising, because it’s often more difficult, and more revealing, to
communicate beliefs regarding how employees should be paid and the intentions
of various reward programs than it is to communicate the more specific purpose
and mechanics of base and incentive pay.
It stands to reason that benefits communication is reported as effective for a variety
of reasons. While benefits programs are complex, most organizations communicate
them more thoroughly than other reward programs. Further, organizations tend to
allocate substantial resources to their benefits communications efforts. (Interestingly,
only 9 percent of the respondents in this survey reported having a separate budget
for reward communications.) Organizations have a better track record with commu-
nicating benefits information, perhaps due to legal requirements to communicate.
Organization Reward Strategy and Philosophy
Digging deeper into employee understanding of reward strategy and philosophy
shows further variation (See Table 1 on page 10). Only a small number of respondents
believe that most employees (61 percent or more) understand any of the reward
strategy and philosophy subcategories that were surveyed, and, in each case, more
respondents believe that only some employees (up to 40 percent of employees)
understand all aspects of the reward strategy and philosophy. The least understood
subcategory is the rationale for the mix of reward elements, where 70 percent of
respondents reported that few or some of their employees understand the rationale
for reward mix, and only 13 percent of organizations reported that most employees
understand. In contrast, respondents indicated that more employees understand the
FIGURE 2 Survey Respondents by Industry
Other
Manufacturing
Finance and insurance
Health care and social assistance
Professional, scientific and technical services
11%
43%
15%
11%
20%
10 WorldatWork Journal
guiding principles of the overall reward program, how reward programs are linked
to business results, employee eligibility for reward programs, and the rationale for
the performance measures used in variable-pay programs. Even in these cases,
however, respondents in only 33 percent to 36 percent of the organizations indicated
that most employees understand these strategic reward issues.
These responses strongly suggest that most organizations are not using reward-
program communications as an opportunity to reinforce possible employee influence
on performance and business results. Organizations would be better served to
improve the line of sight between employees’ impact on the end results of the
business and how this performance relationship is reflected in the organization’s
reward-program design and management.
Ninety-four percent of respondents reported using multiple methods to commu-
nicate reward strategy and philosophy. Of the eight surveyed methods, the median
number used was six. Organizations surveyed indicate a positive link between the
number of reward communications methods used and employee understanding.
This underscores the importance of “strategic redundancy” in communicating and
reinforcing important reward messages.
The most prevalent methods, however, are not always perceived as most effec-
tive, as shown in Table 2. The least effective methods (blogs/electronic bulletin
boards and nonelectronic bulletin boards/other posting), however, were used
by the fewest respondents.
There is a mix of good news and bad news here. The good news is that most
organizations are using communication methods judged “effective” or “very effective,”
TABLE 1 Response to “Rate Employee Understanding of Reward Strategy and Philosophy”
Some Employees Half of Employees Most Employees (Up to 40%) (41% – 60%) (61% or More)
The guiding principles of the overall reward program 42% 23% 35%
How the reward program links to business results 43% 22% 36%
Why certain employees are eligible for a reward program and other employees are not 46% 20% 33%
The principles and rationale for the design of the base-pay program 49% 27% 24%
Why pay targets or minimums and maximums are set at the amounts they are 59% 22% 20%
The principles and rationale for the design of the variable-pay program 50% 24% 27%
Why the organization selects the performance measures it uses for variable-pay programs 45% 22% 33%
The principles and rationale for the design of the benefits program 44% 26% 30%
How the compensation mix of base pay, variable pay and benefits was established 70% 17% 13%
Due to rounding, percentages may not total to 100%.
11 Third Quarter | 2008
they are using less effective methods much less, and they are using multiple methods
to reinforce key messages and connect with a wide array of audiences. The bad news
is that despite these efforts, only 7 percent of respondents judged their communica-
tions of reward strategy and philosophy to be “very effective,” and only an additional
26 percent judged their communications to be “effective.” The strong message is that
communication sent does not equal communication received. Furthermore, simply
one communication may not be enough to make key reward messages stick.
Base-pay Communications
In general, employees have a better understanding of base-pay ranges than
they do of actual pay levels, as Table 3 on page 12 indicates. Organizations that
widely communicate salary-range information generally do not communicate
actual salary data. Even so, about one-half of respondents reported that fewer
than 40 percent of their employees know the salary range for their own job.
The authors’ collective consulting experience has been that most employees
know at least their own salary ranges, and that internal job postings do a pretty
good job at revealing salary-range information for any open positions. To be
sure, job-posting systems have put an unintended spotlight on reward programs
— and all their warts — for many organizations. This may be forcing HR and
line managers to re-evaluate what they should and should not communicate to
employees. When employees do not know the salary range for their job and
TABLE 2 Rate Method EFFECTIVENESS for Communicating Reward Strategy and Philosophy
Use Not Marginally Very Method Effective Effective Effective Effective
E-mail or letter from employee’s supervisor, human resources or senior management 90% 3% 36% 45% 16%
Intranet or Internet sites, CDs/DVDs or other digital information 78% 5% 39% 37% 19%
Printed materials, e.g., newsletters, brochures and leaflets 83% 2% 32% 48% 18%
Individualized compensation or total rewards statements sent to employees 69% 0% 12% 36% 52%
Meetings led by human resources or compensation professionals 83% 0% 15% 46% 39%
Meetings led by line management 77% 3% 30% 39% 29%
Blogs and electronic bulletin boards where an employee can react to statements 28% 25% 50% 20% 5% others have posted
Bulletin boards or other kinds of posting in the workplace (not electronic) 51% 24% 51% 21% 4%
Overall, how effectively does your organization communicate reward strategy and – 16% 51% 26% 7% philosophy information?
Due to rounding, percentages may not total to 100%.
12 WorldatWork Journal
for higher-level positions to which they might aspire, it is more difficult for
them to understand the different levels of contribution the organization expects
from incumbents in various jobs. Thus, a major opportunity is missed to use the
base-salary program to inform and influence employees’ career planning and
development goals.
Respondents reported widespread use of e-mail, letters, the intranet or Internet,
printed materials, individual compensation reward statements, meetings with HR or
compensation professionals and meetings with line management to communicate
base-pay information (See Table 4).
Eighty-eight percent of respondents reported using multiple methods to communi-
cate base-pay information. The median number of methods used was five. And the
number of methods the organization used to communicate to employees was signifi-
cantly related to the overall assessed effectiveness of base-pay communications.
Even though multiple methods were used to communicate base pay, and those
methods were in most cases judged to be effective or very effective, more than
one-half (56 percent) of the compensation professionals responded that their
overall base-pay communications was ineffective or marginally effective.
Base-pay Increases
Sixty-six percent of reward professionals believe that most of their employees
understand the amount of the pay increase they will receive (See Table 5). However,
21 percent of respondents reported that up to 40 percent of employees do not
know the amount of the increase they are to receive. Further, a substantial number
of respondents indicated that most of their employees did not know:
z The goals, rationale or intent regarding why base-pay increases were distributed
in the way they were (45 percent)
TABLE 3 Rate Employee UNDERSTANDING of Base-Pay Communications
Some Employees Half of Employees Most Employees (Up to 40%) (41% – 60%) (61% or More)
The salary range minimum and maximum for the position the employee holds 49% 18% 32%
Salary ranges for jobs in the employee’s job family or for similar jobs 60% 17% 23%
Salary ranges for all or most jobs in the organization 71% 13% 16%
Average pay for employees in the same job or grade 67% 18% 15%
Average pay by grade for employees in the same job family 74% 15% 12%
Average pay by grade for all employees in the organization 76% 13% 11%
Actual pay for all employees 76% 11% 13%
Due to rounding, percentages may not total to 100%.
13 Third Quarter | 2008
z The percentage of employees who received a zero increase (83 percent)
z The range or average increase given to employees in the same work unit or in
similar jobs (47 percent), or to eligible employees (40 percent).
When employees do not understand how salary increases are determined, the
average increase, the range of increases and the like, they lack the context that
would enable them to understand the rationale for base-salary increases they
receive (or don’t receive) and how they are rewarded as compared to others in
TABLE 4 Rate Method EFFECTIVENESS for Communicating Base Pay
Use Not Marginally Very Method Effective Effective Effective Effective
E-mail or letter from employee’s supervisor, human resources or senior management 80% 6% 32% 39% 23%
Intranet or Internet sites, CDs/DVDs or other digital information 58% 12% 37% 37% 14%
Printed materials, e.g., newsletters, brochures and leaflets 61% 8% 34% 42% 15%
Individualized compensation or total rewards statements sent to employees 69% 2% 14% 36% 48%
Meetings led by human resources or compensation professionals 74% 3% 17% 45% 35%
Meetings led by line management 73% 4% 28% 40% 28%
Blogs and electronic bulletin boards where an employee can react to statements 24% 39% 45% 16% 0% others have posted
Bulletin boards or other kinds of posting in the workplace (not electronic) 35% 35% 41% 21% 3%
Overall, how effectively does your organization communicate base-pay information? – 15% 41% 36% 8%
Due to rounding, percentages may not total to 100%.
TABLE 5 Rate Employee UNDERSTANDING of Base-Pay Increases Communications
Some Employees Half of Employees Most Employees (Up to 40%) (41% – 60%) (61% or More)
Amount of increase the individual employee will receive 21% 13% 66%
Range of increases or average increase given to employees in the same work unit or for similar jobs 47% 23% 29%
Range or average increase given to eligible employees 40% 22% 38%
Percentage of employees who received a zero increase 83% 5% 12%
Actual increase amounts given to employees within their department or work unit 67% 13% 20%
Actual increase amount given to all eligible employees 64% 13% 22%
Goals, rationale or intent of why base-pay increases were distributed the way they were 45% 25% 30%
Due to rounding, percentages may not total to 100%.
14 WorldatWork Journal
the organization. The ability to interpret the messages given by base salary is
important to the motivational value of those increases.
As shown in Table 6, the most widely used methods to communicate base-pay
increases are e-mails or letters and meetings with line management. What’s more,
79 percent of respondents reported using more than one method to communicate
base-pay increases. The median number of methods is four. Each method surveyed
is used by more than one-half of respondents, except for blogs and bulletin boards,
which were considered ineffective or marginally effective by most respondents
who use them.
Overall, 59 percent of the respondents believe they effectively communicate
pay-increase information. Organizations using multiple methods to communicate
base-pay increase information consider themselves to be effective at communi-
cating this information.
Short-term Variable Pay
Seventy percent of organizations communicate variable-pay performance targets
to their employees and, as such, 30 percent either do not establish variable-pay
targets or do not communicate them to employees. Further, the authors’ work
found that a majority of the organizations communicate targets, and few commu-
nicate the average, which is as follows:
z Payout based on performance targets (20 percent)
TABLE 6 Rate Method EFFECTIVENESS for Communicating Base Pay Increases
Use Not Marginally Very Method Effective Effective Effective Effective
E-mail or letter from employee’s supervisor, human resources or senior management 76% 8% 22% 41% 29%
Intranet or Internet sites, CDs/DVDs or other digital information 52% 18% 32% 32% 18%
Printed materials, e.g., newsletters, brochures and leaflets 53% 15% 32% 35% 17%
Individualized compensation or total rewards statements sent to employees 63% 6% 11% 31% 52%
Meetings led by human resources or compensation professionals 66% 6% 17% 44% 33%
Meetings led by line management 75% 4% 22% 40% 34%
Blogs and electronic bulletin boards where an employee can react to statements 24% 41% 41% 18% 1% others have posted
Bulletin boards or other kinds of posting in the workplace (not electronic) 33% 39% 39% 20% 2%
Overall, how effectively does your organization communicate base pay increase information? – 10% 31% 44% 15%
Due to rounding, percentages may not total to 100%.
15 Third Quarter | 2008
z Payout for each level of performance (14 percent)
z Amount of variable pay distributed to eligible employees (11 percent).
According to respondents, the most effective methods for communicating infor-
mation about short-term variable pay are e-mail or letters from the employee’s
supervisor, human resources or senior management; printed materials; individual-
ized compensation or total rewards statements sent to employees; and meetings
led by line management (See Table 7). Fifty-nine percent of respondents indicated
that they believe their organization effectively communicates variable-pay infor-
mation and the link between performance and rewards. Blogs and electronic and
traditional bulletin boards are used infrequently and are most often rated
ineffective or marginally effective. Again, the more methods used to communicate
short-term variable-pay information, the higher respondents rated the effectiveness
of their variable-pay communications.
Employee Benefits
Other than blogs and electronic or traditional bulletin boards, respondents use
most methods to communicate their benefits programs and rate them as effective
(See Table 8 on page 16). The authors suspect the legal requirements to commu-
nicate benefits-program details heavily influence these ratings. Overall, 81 percent
of the respondents reported that their organizations were effective or very effective
in communicating benefits information.
TABLE 7 Rate Method EFFECTIVENESS for Communicating Short-term Variable Pay
Use Not Marginally Very Method Effective Effective Effective Effective
E-mail or letter from employee’s supervisor, human resources or senior management 75% 6% 21% 45% 28%
Intranet or Internet sites, CDs/DVDs or other digital information 50% 13% 34% 34% 19%
Printed materials, e.g., newsletters, brochures and leaflets 55% 3% 30% 44% 22%
Individualized compensation or total rewards statements sent to employees 64% 3% 14% 32% 51%
Meetings led by line management 70% 4% 20% 41% 34%
Blogs and electronic bulletin boards where an employee can react to statements 22% 37% 45% 15% 4% others have posted
Bulletin boards or other kinds of posting in the workplace (not electronic) 29% 32% 40% 22% 6%
How effectively does your organization’s short-term variable-pay communications describe the link between performance – 9% 32% 41% 18% and rewards?
Overall, how effectively does your organization communicate short-term variable-pay information? – 9% 32% 46% 13%
Due to rounding, percentages may not total to 100%.
16 WorldatWork Journal
Opportunities to Improve Communications
This study has revealed several promising ways to connect with employees and
explain the intent of reward programs and the approach used to determine indi-
vidual pay levels. They are:
z Take a page from marketing
z Involve line managers
z Pilot test and evaluate
z Engage employees in a benefits conversation
z Establish a communications budget.
While some of these approaches are more involved than others, each can help
employees acquire a better understanding about how their rewards are determined
and why they are paid what they are paid. The correct mix of approaches can
give organizations “more bang for their buck,” thus increasing the “total value” of
the reward program without spending any additional reward dollars.
Take a Page from Marketing. Few organizations use marketing strategies and
tools to communicate reward policies and programs such as branded reward
programs (24 percent), segmented communications to specific employee groups
(25 percent) or using promotions or contests (16 percent). Organizations applying
these marketing techniques did so with success, indicating they were effective or
very effective: 56 percent, 74 percent and 49 percent, respectively. Segmenting
employee groups and tailoring reward communications to these groups can help
connect messages with the audience. McDonald’s Corp. has a particularly effective
TABLE 8 Rate Method EFFECTIVENESS for Communicating Employee Benefits
Use Not Marginally Very Method Effective Effective Effective Effective
E-mail or letter from employee’s supervisor, human resources or senior management 88% 4% 20% 44% 32%
Intranet or Internet sites, CDs/DVDs or other digital information 90% 3% 15% 48% 35%
Printed materials, e.g., newsletters, brochures and leaflets 96% 1% 15% 46% 38%
Individualized compensation or total rewards statements sent to employees 68% 2% 11% 39% 49%
Meetings led by human resources or compensation professionals 90% 1% 11% 43% 46%
Meetings led by line management 59% 7% 32% 40% 21%
Blogs and electronic bulletin boards where an employee can react to statements 26% 27% 39% 26% 7% others have posted
Bulletin boards or other kinds of posting in the workplace (not electronic) 56% 14% 41% 36% 9%
Overall, how effectively does your organization communicate employee-benefits information? – 2% 17% 51% 30%
Due to rounding, percentages may not total to 100%.
17 Third Quarter | 2008
way of branding its reward communications and actively marketing its reward
program to employees (Emerson, Morajda and Scott 2007). McDonald’s used the
phrase “adding it up” as a byline for all compensation communications, which
was a variation of its successful and well-known “I’m lovin’ it.” The company also
used similar colors for communications and dramatic pictures to draw attention
to the compensation communications. Finally, McDonald’s used multiple media
including printed materials, Web sites and e-mail blasts.
Involve Line Managers. Respondents indicated that line managers tend to be
either marginally effective (59 percent) or not effective (20 percent) in communi-
cating rewards. This is certainly discouraging news. But it’s also a huge opportunity.
Organizations can and should leverage the line manager’s role to reinforce the objec-
tives and key concepts of reward programs, field questions employees might have
and (hopefully) limit rumors or inaccuracies that inevitably bubble up. However, this
will only occur if managers understand and support the reward programs and take
on a sense of ownership of them. Employees expect a lot out of their managers and
tend to trust the information they receive from them. Whether viewed as “parental
figures” or standard bearers of the organization’s values, line managers shape the
work climate — in essence what it feels like to work in the organization. As the
adage goes, employees don’t leave bad organizations, they leave bad managers.
Pilot Test and Evaluate. A third opportunity to improve pay communications
and enhance employee understanding comes as a product of a formal evalua-
tion of reward-program effectiveness, something most organizations do not do.
Those that evaluate reward programs and, in particular, pilot test them before
implementation rate their communications programs as more effective then
those who do not. It’s common sense that evaluating the effectiveness of reward
programs would yield valuable insights into how to improve them, especially in
terms of their alignment with the organization’s strategy. A specific approach for
evaluating reward programs is detailed in a WorldatWork Journal paper by Scott,
Morajda and McMullen (2006).
Engage Employees in a Benefits Conversation. Health-care cost management
and retirement investing are two important opportunities to communicate. As org an-
izations are asking employees to take greater responsibility for their health-care
and retirement decisions, and in many cases, requiring that employees pay for
a much larger share of these benefits, organizations are obliged to educate their
employees on how to make sound decisions.
Forty-nine percent of the organizations that responded offer employees the oppor-
tunity to attend retirement-investment training, and 79 percent indicated that the
training is effective. However, only 29 percent of organizations report offering such
training. This indicates that a large percentage of companies that do not provide
retirement-investment training should, and for those who do, finding ways to increase
the participation rate is important.
18 WorldatWork Journal
This same rational can be applied
to helping employees understand and
manage their own health-care costs.
Few companies offer such training
(22 percent), and yet 73 percent of
those that do, consider it effective.
More can and should be done to
engage employees in a conversation
about health-care cost management.
Only 39 percent of employees take
advantage of this opportunity in
those organizations that offer such
training. A huge opportunity exists
to communicate important informa-
tion regarding the ever-growing issue
of health-care cost management.
Establish a Communications Budget. Only 9 percent of the organizations
create a separate budget for communicating information about rewards. Although
most organizations invest at least minimal resources to communicate new reward
programs and changes to existing programs, one must ask the question of whether
organizations are making enough of an investment in reward-program communica-
tions. The authors believe that budgeting for reward communications at both the
development and implementation stages of reward programs as well as for ongoing
communications would increase the likelihood that these communications would
be done more effectively.
CONCLUSIONS
Even though the reported level of employee understanding of reward programs
is low, respondents strongly believe that reward communications impact:
z Organization effectiveness and performance (78 percent)
z Employee satisfaction with pay (81 percent)
z Employee retention (79 percent)
z Employee engagement or motivation (78 percent).
Interestingly, reward professionals believe that certain methods of communi-
cating rewards are very effective, but employee understanding of even some basic
reward information is lacking. Does this mean that methods used to communicate
reward information are, in reality, not very effective at all, or that most employees
are generally not interested in this information?
The authors are not certain. Employee lack of understanding can likely be
attributed to some of both. However, given the importance of having employees
understand the fundamentals of their organization’s reward programs, this gap
cannot be ignored.
RESOURCES PLUSFor more information related to this paper:
www.worldatwork.org Type in this search phrase on the search line:
z “Benefits Communication.”
www.worldatwork.org/bookstore
z Developing a Strategic Benefits Program: How-to Series for the HR Professional
z The Best of Communicating Total Rewards: A Collection of Articles from WorldatWork
z Communicating Total Rewards: How-to Series for the HR Professional.
www.worldatwork.org/education
z T4: Strategic Communication in Total Rewards.
19 Third Quarter | 2008
While this paper describes ways to improve reward communications, a funda-
mental review of reward communications is needed in many organizations.
To develop effective reward communications, organizations should:
z Articulate the purpose of the communications, to make clear what they want
employees to do or understand as result of the communications.
z Take the time to understand the needs and the characteristics of the audience,
and to tailor key messages to the diverse interests and motivations of the employee
population.
z Consider using individualized total rewards statements to communicate the value
of total rewards.
z Employ “strategic redundancy” in communicating core reward messages through
a variety of media and methods.
z Involve senior leaders and line managers in reward communications, but prepare
them first.
z Evaluate the effectiveness of reward communications to ensure that they enhance
employee understanding.
The research reflected in this paper suggests that organizations need not just
have the conviction to communicate their reward programs better, they also need to
plan and budget for these communications. In the end, an organization’s investment
in reward communications is small when compared to the size of reward invest-
ment and the overall return on investment that reward communications can yield if
employees understand the reward program and the purpose of that program. z
Dow Scott, Ph.D., ([email protected]) is a professor of human resources at Loyola University Chicago and president of Performance Development International Inc. He is a nationally recognized compensation and human-resources program evaluation expert, with more than 100 publications. Dr. Scott’s teaching, research and consulting have focused on the creation of effective teams, employee opinion surveys, performance improve-ment strategies, and pay and incentive systems, and the development of high-performance organizations.
Richard S. Sperling, CCP, ([email protected]) is a senior consultant in the Chicago office of Hay Group. He works with clients to design and value jobs, build effective organization structures, and develop and implement reward systems. He has designed leading-edge approaches to analyzing, understanding, designing and valuing work in clients’ increasingly complex and varied organizational settings.
Tom McMullen ([email protected]) is the U.S. reward practice leader for Hay Group, based in Chicago. He has more than 20 years of combined HR
practitioner and compensation consulting experience. His work focuses primarily on total rewards and perfor-mance-program design, including rewards-strategy development and incentive-plan design. Prior to joining Hay Group, McMullen worked for Humana Inc. and Kentucky Fried Chicken Corp. in senior compensation analyst roles. He holds bachelor of science and master of business administration degrees from the University of Louisville.
Bill Bowbin, CCP, ([email protected]) is a senior compensation consultant in the Chicago office of Hay Group Inc. Bowbin’s primary focus is helping organizations develop and implement effec-tive compensation programs. He is also a national trainer for Hay Group’s job evaluation seminars. He holds a master of arts degree from the Institute of Labor and Industrial Relations at the University of Illinois at Urbana-Champaign and a bachelor of science from the College of Commerce and Business Administration at the University of Illinois.
AUTHORS
20 WorldatWork Journal
Emerson, Lisa, Dennis Morajda and Dow Scott. 2007. “Implementing Pay Programs at McDonald’s: The Art and Science of Making Good Ideas Work.” Incentive Pay: Creating a Competitive Advantage. Edited by Dow Scott, Scottsdale, Ariz.: WorldatWork Press.
Gherson, Diane J. 2000. “Getting the Pay Thing Right.” workspan. June: 47-51.
Mulvey, Paul W., Peter V. LeBlanc, Robert L. Heneman and Michael McInerney. 2002. “Study Finds that Knowledge of Pay Process Can Beat Out Amount of Pay in Employee Retention, Organizational Effectiveness.” Journal of Organizational Excellence. Autumn: 29-42.
McMullen, T.D., M.J. Stark and M.A. Royal. 2008. Most Admired Reward Programs: Lessons Learned. WorldatWork Total Rewards WorldatWork Conference, Philadelphia.
Scott, K.Dow, Thomas D. McMullen, Richard S. Sperling and Bill Bowbin. 2007. “Reward Programs: What Works and What Needs to be Improved.” WorldatWork Journal. Third Quarter: 6-21.
Scott, K. Dow, Dennis Morajda and Thomas D. McMullen. 2006. “Evaluating Pay Program Effectiveness.” WorldatWork Journal. Second Quarter: 50-59.
Scott, K. Dow, Richard S. Sperling, Thomas D. McMullen and Marc M. Wallace. 2003. “Linking Compensation Policies and Programs to Organizational Effectiveness.” WorldatWork Journal. Fourth Quarter: 35-44.
REFERENCES
A Framework for Conducting Work-Life Return on Investment
Businesses increasingly are demanding that their
investments provide a return on investment (ROI).
However, quantifying less tangible benefits,
such as employee attitudes, performance, training and
other talent-management factors, can be difficult. Simply
compiling usage figures and extrapolating savings is a step
in the right direction, but is not enough. Human behavior
is complicated and not easily quantifiable. It requires more
complex analysis to determine an accurate estimate of the
financial return gained through personnel programs.
This paper presents a model and approach toward
measuring ROI for work-life initiatives that is quantifiable,
research-based and inclusive of a number of the key
outcomes often associated with these programs.
This model builds upon evidence that the type, quality and
quantity of work-life benefits offered in an organization
can have an immediate impact on employees’ job percep-
tions, beliefs and attitudes. In turn, these factors influence
important (and costly) outcomes, including turnover and
job performance. Specifically, the authors draw upon
evidence that work-life benefits positively affect percep-
tions that the organization is supportive of employees
and their families, and that work-life benefits decrease
work-life conflict (Allen 2001; Casper 2000; Thomas and
Ganster 1995). Both of these concepts have been found
to relate to two important employee attitudes: job satisfac-
tion and organizational commitment (Kossek and Ozeki
1998; Meyer et al. 2002; Rhoades and Eisenberger 2002).
In turn, these attitudes predict turnover and job perfor-
mance (Judge et al. 2001; Meyer et al. 2002; Tett and Meyer
1993), two concepts that can be translated much more
readily into dollar amounts (See Figure 1 on page 22).
Work-Life z
Jessica R. DearesICF International
Rebecca R. Harris Mulvaney, Ph.D.ICF International
Margery Leveen SherICF International
Lance E. Anderson, Ph.D.ICF International
Jennifer L. Harvey, Ph.D.ICF International
Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
22 WorldatWork Journal
This paper reviews the literature supporting each relationship illustrated in Figure 1.
Specifically, the sections are divided according to the three sets of linkages:
z The impact of benefits offered on family-supportive organization perceptions
(FSOP) and work-life conflict
z The impact of FSOP and work-life conflict on job satisfaction and organizational
commitment
z The impact of job satisfaction and organizational commitment on turnover and
job performance.
Following the description of these relationships is an overview of a methodology
for calculating ROI that uses a combination of organizational inputs (e.g., number
of employees, average employee salary, etc.), results from an employee survey and
statistical relationships from the established literature.
IMPACT ON FSOP AND WORK-LIFE CONFLICT
Family-supportive organization perceptions are defined as employees’ general
beliefs regarding the extent their organization seems caring, encouraging and
accommodating toward employees’ family lives. While several factors can influ-
ence FSOP, the family-friendly benefits that an organization offers serve as one
of FSOP’s primary antecedents. For example, if an organization offers a variety
of useful family-friendly benefits, employees will tend to have a stronger view of
the organization as family supportive.
Alternatively, a lack of work-family benefits may lead employees to perceive that
the organization is unsupportive of their personal lives. Research has supported this
notion. For example, Allen (2001) reported a significant positive correlation between
FSOP and all family-friendly benefits offered (r = .19). Note that this relationship
merely focuses upon whether benefits were available, regardless of whether the
FIGURE 1 How Job Perceptions, Beliefs and Attitudes Tie to Organizational Outcomes
Work-Life Programs Job Perceptions, Beliefs and Attitudes Outcomes
Benefits Offered
Family-Supportive Organization Perceptions
Work-Life Conflict
Job Satisfaction
Organizational Commitment
Turnover
Job Performance
Predicted based on cumulative findings of published researchCalculated within the organization
23 Third Quarter | 2008
employees surveyed actually used the benefits. Although factors such as usage of
work-family benefits and perceived support from supervisors also are important in
the development of FSOP (Allen 2001; O’Driscoll et al. 2003), research suggests that
the mere availability of work-life benefits serves as an indicator that the organiza-
tion values its employees’ personal lives. This relationship can be calculated in a
specific organization by surveying employees on their current FSOP, as well as on
their FSOP if the organization did not offer certain work-life programs.
Similarly, the availability of family-friendly benefits appears to be negatively
related to work-life conflict, as employees may feel additional strain between
work and family roles if work-life benefits are not offered on work-life conflict.
For example, in a meta-analytic review, Gajendran and Harrison (2007) found
a significant inverse relationship between telecommuting and work-life conflict
(r = -11). Thus, some research has supported the notion that family benefits can
lessen employees’ pressures and conflicts between work and home. Using the
same method described for FSOP, the effect of an organization’s family-friendly
benefits on work-life conflict can be determined by surveying employees on their
current levels of work-life conflict and by comparing the results to the work-life
conflict that employees would experience if the organization did not offer these
family-friendly benefits. (This technique will be discussed in further detail within
the context of the ROI methodology.)
Thus, the availability of family benefits has an impact on factors such as FSOP
and work-life conflict, and the effect of an organization’s specific work-life benefits
on these variables can be calculated by surveying employees. The next step is
to consider how these work-family perceptions and experiences affect broader
organizational attitudes, including job satisfaction and organizational commitment.
IMPACT ON JOB SATISFACTION AND ORGANIZATIONAL COMMITMENT
Perceived organizational support (POS), which encompasses FSOP, is the perception
that the organization values and cares for its employees and their well-being.
The relationship POS has with two important employee attitudes, job satisfaction
and organizational commitment, has been studied extensively. In a comprehen-
sive meta-analysis that summarized the results from numerous studies on the
antecedents and consequences of POS, Rhoades and Eisenberger (2002) found
that POS has a strong positive relationship with job satisfaction and organiza-
tional commitment (r = .59 and r = .60, respectively). Though less research has
been conducted on FSOP than POS, it appears that when supportive organi-
zational perceptions are limited to the family domain, supportive perceptions
remain strongly correlated with job attitudes. For example, Allen (2001) found
correlations between FSOP and job satisfaction, as well as between FSOP and
organizational commitment, that were only slightly smaller than the relationships
established between these variables and the broader concept of POS (r = .53
and r = .48, respectively). Comparable results have been obtained for constructs
24 WorldatWork Journal
similar to FSOP, including work-family culture and informal work-family support
(Gordon, Whelan-Berry and Hamilton 2007; Thompson and Prottas 2005). In sum,
this research indicates that when employees perceive their organizations to be
supportive of their personal lives, they are more likely to be satisfied with their
jobs and committed to their organizations.
While the perception of an organization as family supportive is an important
antecedent to job attitudes, the experience of work-life conflict also is a factor
in how employees feel about their jobs. Numerous research studies have found
support for an inverse relationship between work-life conflict and job satisfaction
(Allen 2001; Aryee, Srinivas and Tan 2005; Gordon, Whelan-Berry and Hamilton
2007; Grandey, Cordeiro and Crouter 2005; Kinnunen, Geurts and Mauno 2004;
van Steenbergen, Ellemers and Mooijaart 2005), as well as between work-life
conflict and organizational commitment (Allen 2001; Aryee, Srinivas and Tan
2005; Caster et al. 2002; Gordon, Whelan-Berry and Hamilton 2007; Meyer et al.
2002; van Steenbergen, Ellemers and Mooijaart 2007). In a meta-analytic review
of the research on work-life conflict, Kossek and Ozeki (1998) found that the
correlation between work-life conflict and job satisfaction generally is between
-.36 and -.27. Similarly, a meta-analysis on organizational commitment found the
relationship between work-life conflict and affective commitment to the organiza-
tion (an emotional attachment versus commitment due to calculation of costs or
commitment due to feelings of obligation) to be between -.34 and -.06 (Meyer et al.
2002). Although the latter interval is rather wide, a statistically significant inverse
relationship exists between work-life conflict and affective commitment; however,
the absolute strength of this relationship may vary under differing circumstances.
Overall, ample evidence indicates that when employees experience strain between
their work and personal lives, they are less likely to be satisfied with their jobs
or committed to their organizations, as the jobs often are perceived to interfere
with their personal lives.
Thus far, evidence indicates that the work-life benefits offered by an organization
affect factors such as FSOP and work-life conflict, and these perceptions and
experiences related to work-family issues have a strong influence on broader work
attitudes, including job satisfaction and organizational commitment.
IMPACT ON TURNOVER AND JOB PERFORMANCE
Employee attitudes are an important factor in job performance, especially in
predicting turnover. Job satisfaction is one of the most widely studied employee
attitudes, likely because of its significant role in predicting important organiza-
tional outcomes. The concept of “a happy worker is a productive worker” has
been largely debated in the literature. However, with correlations ranging from
.30 to .38 between job satisfaction and performance, recent research has shown
a clear relationship between these two factors ( Judge et al. 2001; Schleicher,
Watt and Greguras 2004; Wright, Cropanzano and Bonett 2007). This relationship
25 Third Quarter | 2008
is thought to exist as positive feelings toward an entity (such as a job) drive
positive behaviors (such as good performance) that favor or support that entity.
The relationship is particularly strong in jobs and occupations that are more
complex (Judge et al. 2001).
Unsurprisingly, job satisfaction also is widely accepted as a predictor of turnover
(Kammeyer-Mueller et al. 2005; Tett and Meyer 1993). In fact, many posit that dissat-
isfaction with one’s job actually starts the turnover process (Kammeyer-Mueller et al.
2005). This relationship is relatively well established in the literature, but it also is
worth noting that, while it was not formally included in this model, job satisfaction
also predicts a host of other negative workplace behaviors (commonly referred to as
withdrawal behaviors), such as absence at work and failure to attend meetings.
Organizational commitment, specifically affective commitment (emotional
attachment) shares similar relationships with job performance and turnover.
Evidence indicates that affective commitment has an even stronger and more
proximal relationship with turnover than job satisfaction (Kammeyer-Mueller et
al. 2005; Tett and Meyer 1993). Furthermore, affective commitment is predictive
of job performance and also of behaviors that represent “going the extra mile”
for co-workers and the organization (often referred to as citizenship behaviors)
(Meyer et al. 2002). In other words, there is considerable evidence that when an
employee identifies with and has an emotional attachment to the organization,
he/she will work harder and be less likely to look for employment elsewhere.
CALCULATING ROI USING THE MODEL
While evidence points to a relationship between work-life programs in general
and more tangible organizational outcomes, this evidence alone is insufficient to
signify ROI for a particular program in a specific organization. To estimate ROI
within a single organization, perceptions of work-life initiatives from employees
in that organization must be measured, and benchmark salary, cost and turnover
data from the organization must be gathered.
In using this model to determine ROI, the authors recommend an approach with
three primary steps:
z Administer an employee questionnaire.
z Gather organizational data.
z Calculate ROI based on organizational data, employee questionnaire results and
statistical relationships from the established literature.
Administer an Employee Questionnaire
Using this ROI model, an evaluator must collect employee data on perceptions
of how a particular program affects employee work-life conflict, as well as FSOP.
To gather this information, the evaluator must measure each of these constructs
(FSOP and conflict), then have each employee complete the same set of measures,
assuming the organization did not have the work-life policy(ies). This allows
26 WorldatWork Journal
the evaluator to calculate the difference in FSOP and work-life conflict that can
be attributed to a work-life policy(ies). (This approach applies when the work-
life program or policy already is in place in the organization; however, this
approach also can be used in the more ideal scenario of a pretest/post-test design.
That design would assess the FSOP and work-life conflict constructs before
the work-life program is implemented and again after the program has been
in place for a period of time. The difference in the constructs before and after
implementation would then be calculated and used to determine the ROI.)
Gather Organizational Data
There also are five organizational inputs that should be relatively easy to attain
for most HR departments:
z Number of employees
z Average employee salary
z Turnover rate from the previous year
z Cost of turnover
z Cost of work-life programs.
For consistency, it is important to determine up front who will be counted in this
data. For example, a conservative estimate may only use number, average salary
and turnover rate of full-time employees. Cost of turnover will be different in every
organization, but generally it includes:
z Separation costs, including the cost of administrative functions related to termina-
tion and exit interviews, severance packages and unemployment compensation
z Replacement costs, including the expense of tasks such as attracting applicants,
interviews, testing, moving expenses and pre-employment administrative
expenses
z Training costs, including the expenditures on formal and informal training
z Vacancy costs (or savings) — the added costs/savings realized while the position
is vacant (Pinkovitz, Moskal and Green 2006)
z Work-life program costs including all costs associated with the implementation
of the work-life programs being covered by the employee questionnaire.
These inputs allow an evaluator to eventually link other data points back
to quantifiable figures and, ultimately, dollar amounts.
Calculate ROI
Once data on the impact of policies on work-life conflict and FSOP is gathered
and organizational data is collected, the evaluator can use established statistical
estimates of the extent to which one factor (such as organizational commitment)
predicts another factor (such as turnover) to determine ROI.
Using this model, an evaluator can use the statistical estimates to calculate
how the differences in FSOP and conflict (attributed to the policy or policies)
affect satisfaction and commitment, and how these differences, in turn, impact
27 Third Quarter | 2008
turnover and performance. Differences
in turnover then can be translated into
dollar amounts using organizational
estimates of cost of turnover, rate of
turnover and number of employees.
Differences in performance can be
translated into dollar amounts using
the number of employees and salary
information. It is estimated that one
standard deviation of performance, in
terms of dollars, for a given job equals
approximately 40 percent of the mean
salary for the job (Schmidt, Hunter
and Pearlman 1982). In other words,
if performance improves or goes
down by one standardized increment
of change among a group of people,
the financial impact on the organiza-
tion is approximately 40 percent of
the average salary of that group of people.
These calculations result in an estimate of the total annual savings from the
reduced turnover and increased performance that can be attributed to work-life
programs. Finally, by subtracting the annual cost of the policies of interest, it is
possible to determine the net benefit obtained from the work-life programs.
LIMITATIONS OF APPROACH AND CONCLUSION
While this model allows for a practical, scientifically based estimate of ROI, it is
important to note several limitations. First, the differences in conflict and the
FSOP are measured by asking employees to estimate what their experience would
be if the program or policy did not exist. This is not as rigorous as conducting a
full evaluation in which these factors would be measured, for example, pre- and
post-implementation, but this method is much more practical in most organizations
where policies and programs already exist.
Next, the statistical estimates that can be used to calculate differences in
organizational commitment, job satisfaction, turnover and performance are
based on research that occurred in other organizations and potentially other
industries. When implementing this model, this limitation is addressed by using
statistical estimates from meta-analyses, or studies that combine results from
many different, previously published studies. This method is an established way
to control for differences that occur from study to study that may account for
differences in results.
RESOURCES PLUSFor more information related to this paper:
www.worldatwork.org Type in this search phrase on the search line:
z “Work-Life ROI.”
www.worldatwork.org/bookstore
z Work-Life Effectiveness: Bottom-Line Strategies for Today’s Workplace
z Life at Work: Beyond Compensation and Benefits.
www.worldatwork.org/education
z W1: Introduction to Work-Life Effectiveness—Successful Work-Life Programs to Attract, Motivate and Retain Employees
z W2: The Flexible Workplace— Strategies for Your Organization
z W4: Organizational Culture Change— A Work-Life Perspective.
28 WorldatWork Journal
Finally, the results are dependent on the evaluator collecting good, reliable
organizational data on factors such as cost of turnover, turnover rates and salary
information. In light of this, the authors tried to include only pieces of data that
would be reasonably accessible to most organizations.
In sum, a framework has been presented that allows organizations to determine
the extent of the financial returns resulting from work-life programs. By linking
employee attitudes related to work-life benefits with more global organizational
attitudes and outcomes, and by combining these results with readily available
organizational data, it is possible for businesses to determine an empirically
supported estimate of the ROI of specific work-life programs. With thoughtful
implementation, the use of such a method will allow organizations to stop assuming
that work-life programs are beneficial and, instead, actually determine the total
dollar impact specific benefits have on the business. z
29 Third Quarter | 2008
Jessica R. Deares, an associate with ICF International, has experience in personnel and organizational research, consulting and human resources. Her past work has included job analysis, training, workforce development and assessment, workforce planning and staffing, performance management, retention, recruitment and selection, and compensation systems. She has conducted research in areas including leader-ship, psychological contracts, performance management and survey nonresponse and has presented her work at national conferences. Deares is currently working toward her Ph.D. in industrial/organizational psychology at The George Washington University.
Rebecca R. Harris Mulvaney, Ph.D., a manager at ICF International, has experience in managing and conducting organizational research and consulting projects with public- and private-sector organizations. Her primary areas of expertise include work-life issues, workforce development, human and organi-zational performance measurement and assessment. Dr. Mulvaney’s work on work-life issues and other topics has been published in peer-reviewed journals and magazines and presented at national professional conferences. Mulvaney holds a Ph.D. in industrial/organizational psychology from The Pennsylvania State University.
Margery Leveen Sher has more than 30 years of experience in the fields of child care, early childhood education and work-life. In 1985, she co-founded a child-care/work-life consulting firm, Fried & Sher Inc. In 2000, Caliber Associates acquired Fried & Sher and Sher became a principal with Caliber, running the child care/work-life practice. In 2005, ICF International acquired Caliber, and she now runs its global work-life practice. She has worked with numerous corpora-tions, government agencies, nonprofit organizations and foundations, ranging from the White House to Marriott International to United Way. Sher is an accomplished speaker and writer who has published many articles and newspaper and newsletter columns, as well as Child Care Options: A Workplace Initiative for the 21st Century (Oryx Press 1994). She has served on a number of nonprofit boards of directors,
including Northern Virginia Family Service and the Metropolitan Washington Work-Life Coalition. In 1994, she was one of the incorporators of the National Learning Institute, and serves as its president. She is also the founder of the TRS Fund for the Community, which provides grants to small nonprofits in Northern Virginia. A graduate of Leadership Washington, Sher has received several awards including, in 1984, Child Care Professional of the Year in Fairfax County, Va., as well as the 2003 Individual Achievement Award from the Metropolitan Washington Work-Life Coalition. She holds a master’s degree in developmental psychology from Rutgers University.
Lance E. Anderson, Ph.D., a vice president at ICF International, has 20 years of experience directing or conducting research projects to develop, evaluate and improve on human resources management tools. He has completed projects dealing with workforce improvement, selection and placement, performance improvement, standards development and certification, development of educational and training require-ments, and leadership development. Dr. Anderson has published articles or book chapters on a variety of topics related to organizational research. Dr. Anderson is an expert in study design, data collection, statistical analysis, project management and project implemen-tation. He holds a Ph.D. in industrial/organizational psychology from Bowling Green State University.
Jennifer L. Harvey, Ph.D., a manager with ICF International, has led or participated in projects with public, private and military organizations in the areas of employee satisfaction, workforce assessment and analysis, survey research and development, statis-tical analysis, job analysis, competency modeling, selection test development and validation, military leadership and research evaluation. She has conducted research in work motivation, job satisfaction, feedback, leadership, emotional regulation and applicant reac-tions. Dr. Harvey has authored a book chapter on job analysis and has presented her work at several profes-sional conferences. Harvey holds a Ph.D. in industrial/ organizational psychology from the University of Akron.
AUTHORS
Allen, Tammy D. 2001. “Family-Supportive Work Environments: The Role of Organizational Perceptions.” Journal of Vocational Behavior. June: 414-435.
Aryee, Samual, E. S. Srinivas and Hwee Hoon Tan. 2005. “Rhythms of Life: Antecedents and Outcomes of Work-Family Balance in Employed Parents.” Journal of Applied Psychology. June: 132-146.
Casper, Wendy J. 2000. “The Effects of Work-Life Benefits and Perceived Organizational Support on Organizational Attractiveness and Employment Desirability.” Dissertation Abstracts International: Section B: The Sciences and Engineering. Vol. 61, No. 5-B: 2803.
Gajendran, Ravi S. and David A. Harrison. 2007. “The Good, the Bad, and the Unknown about Telecommuting: Meta-Analysis of Psychological Mediators and Individual Consequences.” Journal of Applied Psychology. November: 1524-1541.
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Gordon, Judith R., Karen S. Whelan-Berry and Elizabeth A. Hamilton. 2007. “The Relationship among Work-Family Conflict and Enhancement, Organizational Work-Family Culture, and Work Outcomes for Older Working Women.” Journal of Occupational Health Psychology. October: 350-364.
Grandey, Alicia A., Bryanne L. Cordeiro and Ann C. Crouter. 2005. “A Longitudinal and Multi-Source Test of the Work-Family Conflict and Job Satisfaction Relationship.” Journal of Occupational & Organizational Psychology. September: 305-323.
Judge, Timothy A., Carl J. Thoresen, Joyce E. Bono and Gregory K. Patton. 2001. “The Job Satisfaction-Job Performance Relationship: A Qualitative And Quantitative Review.” Psychological Bulletin. May: 376-407.
Kammeyer-Mueller, John D., Connie R. Wanberg, Thereas M. Glomb and Dennis Ahlburg. 2005. “The Role of Temporal Shifts in Turnover Processes: It’s About Time.” Journal of Applied Psychology. July: 644-658.
Kinnunen, Ulla, Sabine Geurts and Saija Mauno. 2004. “Work-to-Family Conflict and its Relationship with Satisfaction and Well-Being: A One-Year Longitudinal Study on Gender Differences.” Work & Stress. January: 1-22.
Kossek, Ellen E. and Cynthia Ozeki. 1998. “Work-Family Conflict, Policies, and the Job-Life Satisfaction Relationship: A Review and Directions for Organizational Behavior-Human Resources Research.” Journal of Applied Psychology. April: 139-149.
Meyer, John P., David J. Stanley, Lynne Herscovitch and Laryssa Topolnytsky. 2002. “Affective, Continuance, and Normative Commitment to the Organization: A Meta-Analysis of Antecedents, Correlates, and Consequences.” Journal of Vocational Behavior. August: 20-52.
O’Driscoll, Michael P., Steven Poelmans, Paul E. Spector, Thomas Kalliath, Tammy D. Allen, Cary L. Cooper and Juan I. Sanchez. 2003. “Family-Responsive Interventions, Perceived Organizational and Supervisor Support, Work-Family Conflict, and Psychological Strain.” International Journal of Stress Management. November: 326-344.
Pinkovitz, William H., Joseph Moskal and Gary Green. 2006. “How Much Does Your Employee Turnover Cost?” Center for Community and Economic Development. Viewed: April 24, 2008, from http://www.uwex.edu/CES/cced/economies/turn.cfm.
Rhoades, Linda and Robert Eisenberger. 2002. “Perceived Organizational Support: A Review of the Literature.” Journal of Applied Psychology. June: 698-714.
Schleicher, Deidra J., John D. Watt and Gary J. Greguras. 2004. “Reexamining the Job Satisfaction-Performance Relationship: The Complexity of Attitudes.” Journal of Applied Psychology. February: 165-177.
Schmidt, Frank L., John E. Hunter and Kenneth Pearlman. 1982. “Assessing the Economic Impact of Personnel Programs on Workforce Productivity.” Personnel Psychology. June: 333–347.
Tett, Robert P. and John P. Meyer. 1993. “Job Satisfaction, Organizational Commitment, Turnover Intention, and Turnover: Path Analyses Based on Meta-Analytic Findings.” Personnel Psychology. June: 259-293.
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Thompson, Cynthia A. and David J. Prottas. 2005. “Relationships among Organizational Family Support, Job Autonomy, Perceived Control, and Employee Well-Being.” Journal of Occupational Health Psychology. June: 100-118.
van Steenbergen, Elianne F., Naomi Ellemers and Ab Mooijaart. 2007. “How Work and Family Can Facilitate Each Other: Distinct Types of Work-Family Facilitation and Outcomes for Women and Men.” Journal of Occupational Health Psychology. July: 279-300.
Wright, Thomas A., Russell Cropanzano and Douglas G. Bonett. 2007. “The Moderating Role of Employee Positive Well Being on the Relation between Job Satisfaction and Job Performance.” Journal of Occupational Health Psychology. April: 93-104.
Issues and Strategies to Employ and Retain Senior Workers in the United States
A s the United States population ages and the
number of people reaching traditional retirement
ages increases, employers may need to attract
and retain more older workers, many of whom are highly
experienced, knowledgeable and skilled.
This paper reviews the challenges faced by older
people looking for employment and employers that wish
to hire them; describes current employer strategies to
hire and retain these workers; and identifies current
strategies and practices that could improve employment
opportunities for older workers.
THE CHANGING RETIREMENT LANDSCAPE
The crucial question is whether the coming demographic
changes will lead to higher employment rates and later
retirements. Several factors suggest that employment rates
for older Americans will rise in the coming years.
z Improved health and declines in physical job demands
leave older people better able to work today than in
the past (National Center for Health Statistics 2006;
Johnson, Mermin and Resseger 2007; Steuerle, Spiro
and Johnson 1999).
Development & Career Opportunities z
Lauren EysterThe Urban Institute
Richard W. Johnson, Ph.D.The Urban Institute
Eric Toder, Ph.D.The Urban Institute
Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
32 WorldatWork Journal
z Recent Social Security changes increase work incentives at older ages. The normal
retirement age for full Social Security benefits recently increased from 65 to 66
and will reach 67 for those born after 1959. The rise in the normal retirement
age will reduce annual retirement benefits for those who take up benefits before
they are age 67.
z Delayed retirement credits have been raised to increase the rewards for taking up
benefits after the normal retirement age, and Congress has repealed the retire-
ment earnings test for beneficiaries past the normal retirement age. The retirement
earnings test, still in place for workers between age 62 and the normal retirement
age, reduces Social Security benefits for employed recipients who earn more than
a limited amount.
z Changes in employer-provided pension and retiree health benefits are also likely
to encourage boomers to remain at work.
The Switch from Defined Benefit to Defined Contribution Plans
During the past 30 years, employers have been shifting from traditional defined
benefit (DB) pensions to defined contribution (DC) plans (Pension and Welfare
Benefits Administration 2001-02), which do not encourage early retirement.
Because contributions continue as long as plan participants remain employed
and workers with a given account balance can receive the same present value of
lifetime benefit regardless of when they chose to begin collecting, DC plans do not
generally penalize work at older ages. Friedberg and Webb (2005) estimated that
the changed incentives in DC compared with DB plans lead people in DC plans
to work about two years longer on average than if they were DB participants.
The Erosion of Retiree Health Benefits
The erosion in employer-provided retiree health benefits is also likely to limit
early retirement. Retiree health insurance, which pays health expenses for early
retirees who have not reached the Medicare eligibility age of 65, facilitates leaving
work by reducing costs arising from the loss of employer health benefits. Workers
offered retiree health benefits by their employers retire earlier than workers who
lose their health benefits when they stop working (Johnson, Davidoff and Perese
2003; Rogowski and Karoly 2000). Rising health-care costs and the introduction
of an accounting rule in 1993 requiring employers to recognize on their balance
sheets the full liability of future retiree health costs have led many employers to
terminate their retiree health plans. In 2005, 33 percent of employers with more
than 200 employees offered retiree health benefits, down from 68 percent in 1988
(Kaiser Family Foundation and Health Research Educational Trust 2005).
THE RESULT: PEOPLE ARE WORKING LONGER
Perhaps in response to these various trends, older adults are now working longer
than they did 20 years ago. Between 1985 and 2007, the share of men in the
33 Third Quarter | 2008
labor force increased from 46 percent to 52 percent at ages 62 to 64 and from
24 percent to 34 percent at ages 65 to 69 (Bureau of Labor Statistics 2008).
The increase in labor-force participation among men older than 65, when Medicare
eligibility begins, suggests that the desire for health-insurance coverage is not the
sole factor boosting participation rates. During the same period, female labor-force
participation rates rose from 29 percent to 42 percent at ages 62 to 64 and from 14
percent to 26 percent at ages 65 to 69, reflecting the aging of a cohort of women
with higher participation rates at younger ages than earlier cohorts.
Several surveys also suggest that boomers intend to continue to work into
old age, although not necessarily at full-time employment (AARP 2003; Mermin,
Johnson and Murphy 2007). An AARP poll found that 38 percent of older workers
want to phase into retirement gradually, instead of leaving the labor force alto-
gether (AARP 2005). Obstacles remain to lengthening work lives, however,
discouraging employees from working longer and employers from hiring and
retaining them.
CHALLENGES CONFRONTING WORKERS AND EMPLOYERS
On the labor supply side, Social Security payroll taxes create disincentives to work
at older ages for people who have spent most of their adult lives in the labor
force. Social Security benefits are based on average indexed monthly earnings,
computed over the 35 years with the highest indexed earnings. For workers with
fewer than 35 years of employment, an additional year of work and contributions
eliminates a year of zero earnings from the benefits computation, often raising
the worker’s future benefits substantially. But for those with longer employment
histories, an additional year of work will raise future Social Security benefits only
if current earnings exceed adjusted earnings in the least remunerative of the top
35 years already used in the computation. This gain in benefits is not typically
large enough to compensate for the additional payroll taxes that the workers must
pay (Butrica, et al. 2004).
Even for workers who have not completed 35 years of qualified work, the net
increase in Social Security benefits is often small because the benefits formula favors
people with low lifetime earnings over those with high lifetime earnings. In addition,
people with spouses who earn substantially more than they do often receive no
additional Social Security benefits in return for the payroll taxes they pay, because
many end up collecting benefits based on their spouse’s earnings history.
Certain fringe benefits also discourage work at older ages. Workers in DB pension
plans often lose pension wealth if they work beyond the plan’s normal retirement
age. Retiree health benefits also encourage retirement before age 65 by providing
affordable health insurance before Medicare eligibility for people who choose to
stop working (Buchmueller, Johnson and Lo Sasso 2006). Although traditional DB
plans and retirement health benefits are becoming less common, they still cover
a significant portion of the workforce, especially in the public sector.
34 WorldatWork Journal
Federal laws and regulations complicate employer efforts to provide the flexible
work options that many older people prefer, discouraging them from remaining in
the labor force. For example, restrictions on DB pension payouts to active workers
make it difficult for workers to phase into retirement because many cannot afford
to reduce their work hours without access to their pension benefits. Also, until
recently, age-discrimination laws made it difficult for employers to offer phased retire-
ment programs that treat certain older workers differently from others. However, in
response to a recent Supreme Court ruling, the U.S. Equal Employment Opportunity
Commission issued new regulations in July 2007 clarifying that the Age Discrimination
in Employment Act does not prohibit employers from favoring older workers over
younger workers (ven when the younger workers in question are age 40 or older.
CURRENT EMPLOYER STRATEGIES TO HIRE AND RETAIN OLDER WORKERS
This section describes employer strategies to help attract and retain older workers.
The first group of strategies encompasses flexible work arrangements and includes
a wide range of alternatives to the traditional full-time, 9 a.m. to 5 p.m. five-days-
a-week work schedule at a single place of employment. Flexible arrangements can
be a powerful tool to retain or attract older workers who may be willing to extend
their careers only if they can free themselves from standard work schedules.
The second group of strategies includes phased retirement alternatives and
focuses especially on the design of benefits packages that might encourage people
to remain with the same employer longer. These include part-time work arrange-
ments allowing employees to retain health and retirement benefits, programs
to rehire former employees as contractors, other creative ways of retaining the
services of former employees part time, and alternative ways of making pension
benefits available to those still working or removing the penalty for additional
work existing in many DB plan arrangements.
Flexible Work Arrangements
Flexible work arrangements may appeal to older adults who no longer wish to
work traditional full-time schedules. Flexible work arrangements include part-time
employment, flexible work schedules, telework, contract work and job sharing.
Flexibility may also include arrangements enabling workers to perform new work
tasks in different ways or change the organization’s work design.
An important benefit of flexible work arrangements is that they can enable
employees to extend their careers with the same employer or in the same occupa-
tion or industry instead of moving to self-employment or to different occupations
or sectors where part-time work schedules are more common (such as retailing).
Part-Time Employment. Part-time employment helps employees balance demands
of their work and personal lives. According to an AARP survey, nearly seven in 10
workers who have not yet retired plan to work into their retirement years or never
retire (AARP 2003).
35 Third Quarter | 2008
While older workers have many reasons to want to work part time, a potential
issue is its impact on pensions, health benefits and other employee benefits.
Internal Revenue Service (IRS) regulations under the Employee Retirement Income
Security Act (ERISA) limit a company’s ability to pay benefits from a DB pension
plan to employees who continue to work for them, while retaining the plan’s
tax-exempt status, although these limits were reduced in 2006. Employers may
no longer wish to bear the same share of health-insurance premiums for part-
time workers as full-time workers, but federal law may limit their ability to adjust
their contributions.
Flexible Work Schedules. The Bureau of Labor Statistics (2005) reports that in
2004, 27.5 percent of the labor force had flexible schedules enabling them to vary
the time they began or ended work. Only about 10 percent of workers, however,
were enrolled in formal, employer-sponsored flex-time programs. While flexible
schedules are becoming more prevalent, the Fair Labor Standards Act (FLSA)
somewhat restricts private employers’ use of flexible schedules and compensatory
leave by requiring them to pay overtime wages to hourly employees who work
more than 40 hours in a week. Although the FLSA protects workers who do not
wish to work more than 40 hours in a week from potential employer pressure
for overtime work to meet short-term needs, it also limits some flexible arrange-
ments that employees and employers may prefer. The federal government may be
able to make better use of flexible schedules because the FLSA allows it to grant
compensatory leave instead of overtime pay to employees who work more than
40 hours in a week.
Job Sharing. Job sharing is defined as an arrangement that allows two or more
employees, each working part-time, to share responsibility for a single job and
arrange their vacations and days off so one is always at work during the normal
workweek (WorldatWork 2007a). Job-sharing arrangements can help employees as
they move from full-time work to part-time work. Employers may benefit from the
enhanced skill sets that often result when two experienced people share a single job.
It requires clear delineation of work responsibilities and frequent communication
among the job sharers and their manager.
Changing Jobs Within the Company. Sometimes a way to facilitate shifts to
part-time work, this option can also offer new opportunities to older employees
who have become less motivated in their existing position and are seeking new
challenges, or it can enable employees to shift to new positions better suited to
their changing capabilities or preferences.
Telework. Under telework arrangements, employees work either from home or
from teleworking centers closer to home than their normal workplace. The main
benefit of teleworking is the saving of commuting time.
Off-site work possibilities are increasing as the number of workers in such
sectors as financial services, information technology and communications services
rises. The number of Americans whose employer allowed them to work from home
36 WorldatWork Journal
at least one day a month grew from 9.9 million to 12.4 million between 2005 and
2006, an increase of 25 percent (WorldatWork 2007b).
Snowbird Programs. Snowbird programs allow employees to shuttle between
two locations seasonally. The programs are especially appealing to workers who
seek warmer climates in the winter months and cooler climates in the summer.
Snowbird programs are economically viable for organizations in sectors such as
retailing and health-care services in which the customer base also migrates from
north to south in the winter months.
PHASED RETIREMENT PLANS
Workers in DB pension plans have strong economic incentives to retire from
their current employer and may face lesser employment opportunities at other
firms. Employers often face significant legal barriers to offering their employees
pension benefits while still working or opportunities to participate in phased
retirement plans.
Employees may have limited opportunities to phase into retirement gradually
with their current employers in part because benefits plans generally inhibit
these arrangements. Employers, however, are continuing to switch from DB to DC
retirement pension plans, which can more easily distribute retirement payments
to employees still on the job. Many employers are also learning how to design
phased retirement arrangements, either formal or informal, that can survive legal
challenges. These trends will provide more opportunities for employees to take
phased retirement in the future.
Employers often are willing to work out phased retirement, but only as an
informal arrangement (Hutchens and Grace-Martin 2006). As a result, unionized
firms and establishments that are part of larger organizations are less likely
to permit phased retirement because unions and large bureaucracies gener-
ally oppose informal arrangements, preferring arrangements agreed on through
collective bargaining or imposed as part of overall personnel rules. Firms that
have flexible work practices in general (flex time, employment of part-time
workers, job sharing) are more likely to allow phased retirement. Hutchens and
Grace-Martin (2006) found that having a DB plan does not by itself reduce the
probability of allowing phased retirement after controlling for firm size and
unionization status.
Employees who switch from full-time to part-time work often change employers
instead of phasing into retirement with the same employer (Hutchens 2007).
Less than 10 percent of workers age 62 to 64 surveyed in the “Health and Retirement
Study” transitioned from full-time to part-time work during a two-year period,
and approximately one-half of those who made the transition changed employers
(Even and Macpherson 2004). Skilled white-collar workers are more likely to take
phased retirement than nonphased retirement, and blacks are more likely to take
nonphased retirement (Chen and Scott 2006). Those who take phased retirement
37 Third Quarter | 2008
have higher levels of education, household income and wealth than those who
do not take phased retirement.
The federal government has an older workforce than most employers, with
approximately 60 percent of workers eligible for retirement in the next 10 years.
While the federal government is a leader in developing flexible workplace prac-
tices, it does not do much to facilitate gradual transitions from work to retirement.
It offers a DB pension plan encouraging early retirement, especially for workers
hired before 1984 under the old Civil Service Retirement System (CSRS), but also,
though to a lesser degree, for those participating in the post-1984 Federal Employee
Retirement System. However, the Office of Personnel Mangement (OPM) recently
proposed legislation allowing federal agencies to bring back retired employees
on up to a half-time basis, while continuing to pay full retirement benefits (Barr
2007). Employees would not earn additional retirement credits from their work.
The OPM also proposed revising the CSRS formula so employees could continue
to work part time at the end of their careers without incurring the current penalty
against their retirement calculation.
Some business practices facilitate phased retirement. These include age-neutral
pension plans, pension arrangements under traditional DB plans enabling
employees to continue working without losing pension benefits, formal plans
by companies to transition their older employees to part-time work, and use of
former employees as contractors.
Age-Neutral Pensions
Beginning in the late 1990s, some large employers converted their DB plans to
cash-balance plans, but age-discrimination claims created uncertainty about the
legality of these conversions, halting new conversions for several years. While it
now appears that the courts will uphold the legality of cash-balance conversions,
more employers seem to be terminating or freezing DB plans completely and
replacing them with DC plans (Munnell et al. 2006).
The share of private-sector workers participating in traditional employer-spon-
sored DB plans has been declining steadily for the past quarter-century, dropping
from 39 percent in 1980 to 20 percent in 2006 (Bureau of Labor Statistics 2006;
Pension and Welfare Benefits Administration 2001-02). During the same period,
the share of private-sector workers participating in any type of retirement plan
(traditional DB, other or both) increased from 47 percent to 51 percent. The shift
away from DB plans has been accelerating in recent years (VanDerhei 2006).
Deferred Retirement Option Plans (DROPs)
Many state and local governments have recently instituted deferred retirement
option plans (DROPs) as a way of getting around the work disincentives produced
by DB plan formulas. Under a DROP, a worker who reaches retirement age can
continue working and receive contributions to a retirement fund equaling the
38 WorldatWork Journal
pension benefit he or she would have received if retired. The worker does not
receive a cash pension benefit, but the amount contributed to the DROP account
accrues interest until he or she actually retires. Upon retirement, the employee
starts receiving the same annual pension benefit he or she would have received
if terminating employment at the retirement age, and he or she can withdraw the
funds in the DROP account either as a lump sum or as an actuarially equivalent
retirement annuity. In effect, the addition of a DROP makes the DB plan age
neutral because the present value of the employee’s lifetime retirement benefit
does not depend on the retirement date. At the same time, the employee is not
receiving any cash pension benefits until retirement.
Under some plan designs, DROPs can be used to force out employees, especially
if the plan is available only between the earliest retirement age specified in the
plan and the normal retirement age (Calhoun and Tepfer 1998). Further, private-
sector employers considering DROPs must deal with a host of complex legal issues
under the tax law and ERISA relating to rules against back-loading pension benefits
and against discrimination favoring highly compensated employees. These legal
complications have limited the use of DROPs in the private sector.
Transition to Part-Time Employment
Before enactment of the Pension Protection Act of 2006 (PPA), IRS regulations did
not allow firms to pay retirement benefits from DB plans before termination of
employment, except in a limited way. PPA allows payment of benefits to in-service
workers who are age 62 or older, although new regulations under PPA are still
pending. Even before this change, some firms have instituted programs allowing
older workers to reduce their hours gradually, either in their current job or a new
job, while still receiving some pension and health benefits. Other employers are
able to meet regulatory requirements and pay retirement benefits to older workers
by terminating the employees and rehiring them part time. The law is unclear
about what constitutes termination of employment, so it would seem that some
interval would need to pass between terminating and rehiring before the former
employee could be counted as a new hire.
Hiring Former Employees as Independent Contractors
As an alternative to paying pension benefits to active employees, the firm could
terminate employment and then rehire the former employee as a consultant or
independent contractor. Independent contractors do not receive employee benefits,
but independent contractor status does enable former employees to receive full
retirement benefits while working for their previous employer.
While there are no restrictions on paying DB benefits to former employees who
are independent contractors, issues arise in determining whether the provider of
labor services is really an independent contractor. Because independent contractor
status can be used to evade taxes and avoid labor laws, the tax law has a complex
39 Third Quarter | 2008
20-part test of what constitutes an independent contractor. One important compo-
nent of that test is whether individuals set work conditions — the how, when
and where. Independent contractor status may not be ideal in cases in which the
employer wishes to access a worker’s labor services regularly and predictably for
tasks the employer defines and manages. Instead, contracting arrangements are
more suitable for short-term projects or for temporary time periods.
Other Arrangements to Retain the Services of Retirees
Companies developed other creative ways to continue to employ older or retired
workers on an intermittent or part-time basis. Some companies, for example, recruit
retirees to help on short-term projects. Others have programs to shift workers into
a mentoring role.
OTHER STRATEGIES
With the Boomers reaching retirement age and some observers forecasting labor
shortages, government and other service providers — such as employment agencies,
nonprofit organizations and community colleges — are beginning to tailor their
programming and services to individuals age 50 and older.
Helping Older Workers Find Employment
Sources of job-search assistance for older workers are proliferating rapidly in the
private sector. Tools geared specifically to older workers include job Web sites,
job fairs, books and articles, job centers, recruiters and career counseling services.
This growing cottage industry has defined its client base as older workers and
is reaching out to workers age 55 and older, and sometimes to workers who are
as young as age 40.
The public sector is also developing targeted services and often implementing
them with the help of private providers. It employs many strategies and tools used
in the private sector to help older workers find employment opportunities, but
it often targets those with limited skills or employment experience by providing
additional assistance.
As job services to older workers become available through the public and private
sector, navigating the myriad of service options may be the next challenge for
older workers to find the assistance they need. The following section describes
some various services and access points for older workers. For the total rewards
professional, these services may prove to be resources for attracting employees as
part of a talent-management strategy.
Job and Career Centers
Older workers can typically find job-search assistance at government-funded job
and career centers — One-Stop Career Centers and Senior Community Service
Employment Program (SCSEP) sites. One-Stops provide job-search assistance
40 WorldatWork Journal
(among other employment and training services) to all workers regardless of
income, while SCSEP sites provide employment and training services to low-
income individuals age 55 and older.
Employment Web Sites
A growing industry of online job-assistance services is being tailored specifi-
cally to older workers. Internet job sites and job banks that target older workers
are becoming increasingly popular, and they are beginning to court workers
and job seekers age 40 and older, not just the 55-and-older age group (Olsen
2007). Some Web sites are industry-specific, listing job openings in fields such
as engineering and health care that are targeted to older workers or retirees
with skills in high demand.
Job Counseling
At One-Stop Career Centers, staff and older worker specialists provide job coun-
seling to older workers seeking new employment. These staffers can identify
high-growth industries, companies with job openings and the skills needed to
obtain these jobs. Staffers counsel older workers on how to pursue job openings,
interview with employers and deal with various age-specific issues.
Other counseling services help older workers find temporary or part-time
work, full-time careers or business opportunities. Senior Employment Resources,
a private nonprofit organization, provides targeted job-search activities and job
counseling to adults age 50 and older (Senior Employment Resources 2007).
Its volunteer staff is composed of retired professionals who counsel older job
seekers on career directions, resumes and interviews, as well as networking.
SCORE, a national nonprofit association funded by the U.S. Small Business
Administration, offers counseling to budding entrepreneurs.
Training Older Workers to Meet Employer Needs
Some older workers may have difficulty obtaining the training they need to move
into new jobs or receive promotions (Frazis, Gittleman and Joyce 1998) because
employers, who provide most job training in the U.S., are more likely to offer
training opportunities to midcareer workers. However, some community colleges
and publicly funded employment and training programs are targeting older adults
for training and creating educational tracks that meet their employment needs.
Publicly funded training programs have been serving older workers for decades.
Although previous legislation authorized special funding blocks for older workers,
the Workforce Investment Act of 1998 (WIA), the federally funded employment and
training program, combined employment and training monies under one funding
stream for all adults to provide universal access to these services. This legislation
does, however, allow states and local areas to give priority to special populations,
such as older workers, when deciding how to allocate training funds (United States
41 Third Quarter | 2008
Department of Labor 2007). State and
local dislocated worker programs
funded through WIA serve a growing
number of older workers.
Some community colleges are
leading efforts to develop job training
opportunities for older workers to meet
local labor-market needs. They often
collaborate with local and state work-
force agencies and workforce investment
boards for funding, labor-market
information and mutual referrals.
Public-Private Partnerships
A main objective of government
workforce-development agencies
has been to foster the development
of partnerships among key stake-
holders. These stakeholders include
employers, industry and economic
development groups, secondary and
postsecondary educational institutions, service providers and other nonprofit
community organizations. At the state and local level, relationships are often
developed through the workforce-investment boards, half of whose membership
must be selected from the employer community. In addition, states and local
areas are developing special initiatives to bring together these partners, especially
employers and industry groups, to promote the skilled workforce that employers
need. States engaged in these strategies include Arizona, Arkansas and Iowa.
Employer involvement is crucial to the success of these efforts.
Given the competing time demands on employers and industry-group representa-
tives, participating in a partnership or initiative can be difficult. Their involvement
depends on their perception that they will benefit from investing time and resources
in a partnership. Also, information to educate employers on hiring and retaining
older workers needs to be presented in a quick and useful format. Strategies to
engage employers center on creating and maintaining partnerships to create employ-
ment opportunities and educating employers on the value of older workers.
SUMMARY AND FUTURE PROSPECTS
Employers, government, nonprofit organizations and community colleges are
beginning to develop strategies to attract and retain older workers. As the older
population increases — particularly with the aging of the Baby Boomers —
RESOURCES PLUSFor more information related to this paper:
www.worldatwork.org Type in any or all of the following search keywords on the search line:
z “Mature Workers”
z Flexibility
z “Baby Boomers”
z Phased retirement.
www.worldatwork.org/bookstore
z The Best of Attraction and Retention: A Collection of Articles from WorldatWork
z Workplace Flexibility: Innovation in Action
z Workforce Engagement: Strategies to Attract, Motivate and Retain Talent.
www.worldatwork.org/education
z W2: The Flexible Workplace— Strategies for Your Organization.
42 WorldatWork Journal
and the growth in the middle-aged population slows, older adults are becoming
an increasingly important labor source.
Employers’ ability to tap into this underused resource in the coming years
could be the key to avoiding labor shortages and maintaining economic growth.
For employers, the challenge is to develop workforce policies appealing to older
workers without sacrificing productivity. Unlike most younger adults, who must
work full time to maintain their living standards, many older people have accumu-
lated substantial savings or gained access to regular retirement incomes and thus
can afford to work part time or stop working completely. They can be especially
selective in their job search and turn down offers that do not suit them. The wage
may not be the most important element of the employment package for many older
Americans. Instead, they may assign more significance to how well employment
opportunities allow them to combine work with other priorities, such as leisure
activities and family-care responsibilities.
Many older workers prefer workplace flexibility, and increasing numbers of
employers are offering flexible arrangements, including part-time work, flexible
work schedules, job sharing and telework. Phased retirement arrangements are
another option for employers trying to attract older workers, although formal
programs remain rare. Phased retirement plans allowing experienced workers to
reduce their work schedules at their career employers can benefit the older worker
and the employer. Firm-specific skills built by workers during their careers are lost
when older workers are forced to change employers to reduce work hours.
A key issue for future employment prospects is how the business community
will respond to the increased availability of older workers. Relatively few
employers have actively begun to recruit older workers, primarily because they
foresee no worker shortages. The industries that have most vigorously recruited
older workers, such as health care and energy, already face imminent labor
shortages. As the population ages and increasing numbers of employers experi-
ence attrition of key personnel, more employers may adapt workplace polices
appealing to older people. However, some observers who point to the long-term
stagnation of hourly earnings for most workers and believe that globalization
may enable people working overseas to help continue to meet the American
economy’s employment needs dispute claims that labor shortages are inevitable
in the United States and express doubt that the demand for older workers will
soar (Freeman 2006).
The work of the federal Taskforce on the Aging of the American Workforce
may create new strategies to promote employment at older ages. The task force
identified ways to promote self-employment opportunities, provide technical assis-
tance to programs serving older workers, improve retirement and financial literacy
among older people, and increase awareness of the advantages that older people
can offer employers. These efforts may raise employment rates among older adults
and help meet the challenges of an aging workforce. z
43 Third Quarter | 2008
AARP. 2003. Staying Ahead of the Curve 2003: The AARP Working in Retirement Study. Washington, D.C.: AARP.
AARP. 2005. Attitudes of Individuals 50 and Older toward Phased Retirement. Washington, D.C.: AARP.
Barr, Stephen. 2007. “OPM Suggests Retirement Reforms.” Washington Post, April 17, D.4.
Buchmueller, Thomas C., Richard W. Johnson and Anthony T. Lo Sasso. 2006. “Trends in Retiree Health Insurance, 1997 to 2003.” Health Affairs. 25(6): 1,507–16.
Bureau of Labor Statistics. 2005. “Workers on Flexible and Shift Schedules in May 2004.” http://www.bls.gov/news.release/flex.nr0.htm.
Bureau of Labor Statistics. 2006. “National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2006.” Washington, D.C.: U.S. Department of Labor.
Bureau of Labor Statistics. 2008. “Federal Labor Force Statistics from the Current Population Statistics.” http://data.bls.gov/PDQ/outside.jsp?survey=ln.
Butrica, Barbara A., Richard W. Johnson, Karen E. Smith and C. Eugene Steuerle. 2004. “Does Work Pay at Older Ages?” Washington, D.C.: The Urban Institute.
Calhoun, Carol V. and Arthur H. Tepfer. 1998. “Deferred Retirement Option Plans (‘Drop Plans’).” http://benefitsattorney.com/modules.php?name=Content&pa=showpage&pid=14. Viewed: May 15, 2008.
Chen, Yung-Ping and John C. Scott. 2006. “Phased Retirement: Who Opts for It and toward What End?” Washington, D.C.: AARP Public Policy Institute.
Even, William E. and David A. Macpherson. 2004. “Do Pensions Impede Phased Retirement?” IZA Discussion Paper 1353. Bonn, Germany: Institute for the Study of Labor.
Frazis, Harley, Maury Gittleman and Mary Joyce. 1998. “Correlates of Training: An Analysis Using Both Employer and Employee Characteristics.” Industrial and Labor Relations Review. Vol. 53, No. 3: 443–62.
Freeman, Richard B. 2006. “Is a Great Labor Shortage Coming? Replacement Demand in the Global Economy.” NBER Working Paper 12,541. Cambridge, Mass.: National Bureau of Economic Research.
Friedberg, Leora and Anthony Webb. 2005. “Retirement and the Evolution of Pension Structure.” Journal of Human Resources. Vol. 40, No. 2: 281–308.
Hutchens, Robert. 2007. “Phased Retirement: Problems and Prospects.” Work Opportunities for Older Americans Series 8. Chestnut Hill, Mass: Center for Retirement Research at Boston College.
Hutchens, Robert and Karen Grace-Martin. 2006. “Employer Willingness to Permit Phased Retirement: Why Are Some More Willing Than Others?” Industrial and Labor Relations Review. Vol. 59, No. 4: 525–46.
REFERENCES
WEB EXTRA
To view the entire report by The Urban Institute titled “Current Strategies to Employ
and Retain Older Workers,” go to http://www.urban.org/publications/411626.html.
Lauren Eyster is a research associate in The Urban Institute’s Center on Labor, Human Services and Population. She studies policies and programs affecting American workers and their families, namely employment and training programs under the Workforce Investment Act of 1998, and work supports such as child care and food stamps.
Richard W. Johnson, Ph.D., a principal research associate at The Urban Institute, is an economist specializing in health and income security at older ages. He is an expert on older Americans’ employ-ment and retirement decisions. Recent studies include
analyses of occupational change at older ages, changes over time in job demands, and the impact of health-care costs, elder-care responsibilities and spousal disability on retirement decisions.
Eric Toder, Ph.D., is a senior fellow at The Urban Institute and the Urban-Brookings Tax Policy Center, where he performs and supervises research on tax policy and retirement policy. He previously held a number of positions in the U.S. government, including deputy assistant secretary for tax analysis at the U.S. Treasury Department. Dr. Toder received his Ph.D. in economics from the University of Rochester in 1971.
AUTHORS
44 WorldatWork Journal
Johnson, Richard W., Gordon B.T. Mermin and Matthew Resseger. 2007. “Employment at Older Ages and the Changing Nature of Work.” AARP Public Policy Institute Report No. 2007-20. Washington, D.C.: AARP. http://assets.aarp.org/rgcenter/econ/2007_20_work.pdf.
Kaiser Family Foundation and Health Research Educational Trust. 2005. “Employer Health Benefits: 2005 Annual Survey.” Menlo Park, Calif., and Chicago: Kaiser Family Foundation and Health Research Educational Trust.
Mermin, Gordon B.T., Richard W. Johnson and Dan Murphy. 2007. “Why Do Boomers Plan To Work Longer?” Journal of Gerontology: Social Sciences. 62B(5) S286–94.
Munnell, Alicia H., Francesca Golub-Sass, Mauricio Soto and Francis Vitagliano. 2006. “Why Are Healthy Employers Freezing Their Pensions?” CRR Issue in Brief 44. Chestnut Hill, Mass.: Center for Retirement Research at Boston College.
National Center for Health Statistics. 2006. “Trends in Health and Aging.” http://209.217.72.34/aging/TableViewer/tableView.aspx?ReportId=313.
Olsen, Elizabeth. 2007. “Some Web Job Sites Put Out ‘Gray Hair Welcome’ Signs.” The New York Times, January 14.
Pension and Welfare Benefits Administration. 2001-02. Private Pension Plan Bulletin: Abstract of 1998 Form 5500 Annual Reports. Washington, D.C.: U.S. Department of Labor.
Rogowski, Jeannette and Lynn Karoly. 2000. “Health Insurance and Retirement Behavior: Evidence from the Health and Retirement Survey.” Journal of Health Economics. Vol 19, No. 4: 529–39.
Senior Employment Resources. 2007. “Senior Employment Resources.” www.seniorjobs.org/. Viewed: May 15, 2008.
Steuerle, C. Eugene, Christopher Spiro and Richard W. Johnson. 1999. “Can Americans Work Longer? Straight Talk on Social Security and Retirement” Policy 5. Washington, D.C.: The Urban Institute.
United States Department of Labor. 2007. “Senior Community Service Employment Program (SCSEP)” www.doleta.gov/seniors/. Viewed: Aug. 1, 2008.
VanDerhei, Jack. 2006. “Defined Benefit Plan Freezes: Who’s Affected, How Much, and Replacing Lost Accruals.” EBRI Issue Brief 291. Washington, D.C.: Employee Benefit Research Institute. www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3628. Viewed: May 15, 2008.
WorldatWork. 2007a. The WorldatWork Handbook of Compensation, Benefits & Total Rewards. Scottsdale, Ariz: WorldatWork; 700.
WorldatWork. 2007b. “2007 Survey Brief: Telework Trendlines for 2006.” Scottsdale, Ariz.: WorldatWork.
Reward Management In Multinational Enterprises: Global Principles; Local Strategies
How effectively and appropriately multinational
enterprises (MNEs) reward performance signifi-
cantly influences workforce effectiveness. “Going
global” presents several types of challenges including:
1 | Conforming to local laws and regulations
2 | Adapting to local cultures
3 | Competing effectively in diverse labor markets
4 | Developing strategies and programs that are consistent
with organizational culture
5 | Efficiently administering programs.
Conforming to local laws and regulations is primarily
a technical issue, with specific answers. Each organiza-
tion must identify the relevant rules in each location and
decide how it ensures that its total rewards programs do
not violate them. It must decide whether to use outside
experts or its own staff to ensure compliance. Coping
with the competitive realities faced in each local labor
market is also a technical issue, about which much has
been written. The supply/demand balance for specific
skills, the role of third parties such as unions, the cost
of living and the nature of organizations competing
in the market all influence the workings of the labor
HR Strategy z
Robert J. Greene, Ph.D.,
GRP, GPHR, CPHRCReward $ystems Inc.
Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
46 WorldatWork Journal
markets. For example, multinationals are facing challenges in China due to the
shortage of experienced management personnel. The shortage is exacerbated by
the reality that using expatriates or third-country nationals is often too expensive
or difficult because of language barriers and other impediments to effectiveness.
But global rewards professionals have tools to deal with these challenges, albeit
not without difficulty.
Cultural diversity challenges may be the most daunting of all. Effectiveness in
dealing with multiple cultures is best met by practicing the “3 Rs” of cross-cultural
management. To effectively attract, retain, motivate and satisfy a high-quality
workforce, MNEs must recognize cultural differences, respect the rights of those
with differing values and beliefs and reconcile the issues raised by these differences
(Trompenaars and Hambden-Turner 2004). Many United States-based organizations
are ethnocentric, which means they believe the culture prevailing in the U.S. is the
correct one and act accordingly. Surveys by Trompenaars and Hofstede (Hofstede
1990) show American organizations to rank low in cross-cultural integration.
This impedes efforts to turn cross-cultural challenges into opportunities.
Cultural differences within global workforces create daunting challenges for
rewards management practitioners. Concepts such as rewarding individuals based
on their performance have proven devilishly difficult to implement and to make
work effectively in some parts of the world. Perhaps it is challenging to make
pay for performance work well in some cultures, as the theories supporting
the use of this practice may not apply in all cultures. Most research that led to
formulating these theories was conducted on Western/Northern employees in
Western/Northern organizations by Western/Northern researchers. One could
therefore ask the question: “Would these research findings hold up in other
parts of the world?”
Figure 1 is based on research by Trompenaars and Hofstede, who identified
cultural differences among countries by measuring the extent to which the char-
acteristics existed in samples of the populations. Both researchers used cultural
“dimensions” to describe contrasts across national borders. The dimensions cited
in the figure can be defined as follows:
z Communitarian (group-/society-oriented) versus individualistic (self-oriented)
z Particularistic (circumstances or who is involved should impact actions) versus
universalistic (one set of rules to be applied to everyone in all situations)
z Ascriptive/ascribed status (how one is treated depends on who they are) versus
achieved status (all status is earned through achievements)
z Outer-directed (person not in control; external forces impact outcomes) versus inner-
directed (“can do” attitude caused by the belief that results follow effort and skill)
z High power difference (hierarchy and authority are prominent) versus low power
difference (less differentiation by level and more democratic processes).
No country’s culture exactly matches either of the two admittedly exaggerated
profiles in Figure 1. But differences among national cultures are significant, a fact
47 Third Quarter | 2008
supported by research and experience. And these differences have been shown to
have a material impact on the success of HR strategies and programs. By contrasting
polar profiles, the full range of cultures can be appreciated, enabling HR practitio-
ners to develop robust strategies that can cope with a wide range of difference.
This paper examines whether the principles underlying reward systems that have
proven to be effective in Western/Northern (W/N)-type cultures are likely to hold
in Eastern/Southern (E/S) and other types of cultures. Hypotheses are presented
that can be used to anticipate different levels of effectiveness for various strategies
and programs. Implications for global organizations are examined, with a focus
on the overarching issue: whether one reward strategy should be implemented
globally or if local customization should be applied to strategies and programs.
It should be noted that the cultures prevailing in any single W/N organization
may well vary from the W/N profile, despite being in a country with a W/N
culture. For example, organizational cultures in many startup high-tech American
companies are person-focused rather than task-focused (what is commonly
thought of as the “Silicon Valley culture”). The reaction of employees to a
particular reward strategy/program may, in these organizations, take on many
characteristics of the E/S cultural profile. Further complicating the anticipation
of culture’s impact is the reality that units or occupational clusters within a W/N
corporate culture may have their own subcultures. For example, the research and
development function may be more E/S, a byproduct of the type of work being
done and the nature of the individuals who perform it. As a result, it is perilous
to assume a particular approach will be acceptable to all employees, even when
the organization’s overall culture fits the country’s cultural profile. Trompenaars
and Hambden-Turner (1998 and 2004) point out that there is as much variance
within a country as there is across countries. Given the way country borders are
FIGURE 1 The Contrast Between Conceptually Polar Western/Northern and Eastern/Southern Cultural Profiles
Eastern/Southern Cultures Western/Northern Cultures
Characteristics of cultures: Characteristics of cultures:
z Communitarian z Individualistic
z Hierarchical z Egalitarian
z Particularistic z Universalistic
z Ascribed status z Achieved status
z Person-focused z Task-focused
z External control z Internal control
z Intuitive/holistic z Analytical/reductionist
z High power difference z Low power difference
Countries with cultures that favor this profile: Countries with cultures that favor this profile: Japan, China, Egypt, Indonesia, Turkey, Brazil, United States, United Kingdom, Canada, Australia, Venezuela, South Korea, France, Greece, Italy, Norway, Sweden, Switzerland, Germany, Netherlands Spain, Russia, Egypt
48 WorldatWork Journal
being adjusted (i.e., the Balkans and Eastern Europe), it may even be necessary
to define cultures for specific societies, rather than countries.
CULTURAL DIFFERENCES’ INFLUENCE
ON REWARD-SYSTEM EFFECTIVENESS
W/N cultures support individual rewards based on individual performance.
The majority of direct compensation is typically in the form of merit pay in W/N
organizations. Individual performance criteria and standards are established in
advance, and rewards are tied to results compared to these standards. Performance
appraisals and rewards based on appraisal results are a result of a cultural bias
that argues for distributing rewards differently among individuals. Also, “telling
it like it is” is common practice. Identifying where an employee succeeded and
failed is not only acceptable — it is expected of managers. But this approach is
not as acceptable in more collectivist and person-focused cultures, as it will cause
the employee to “lose face” and/or it will conflict with the belief that outcomes
are not under the control of individuals. Other more effective and more culturally
compatible methods may be needed. The anthropologist Edward T. Hall differenti-
ates between “high context” cultures (such as Japan), where intensive socialization
makes the restatement of values and expectations largely unnecessary and “low
context” cultures (such as the U.S.) where explicit communication is needed to
define what is expected (Hall 1976). In the high-context culture, it is often not
necessary to explain why rewards are administered in a particular manner or what
the expectations are for each party involved in the process. In a low-context culture,
the lack of specificity will likely be to reduce the process’ effectiveness.
The practice of basing rewards on performance at an individual level may
not fit well in the more E/S cultures. When the prevailing view is that it takes
everyone to achieve continuous improvement (for example, in Japan and several
Asian countries), the act of singling out one employee’s contributions (or lack
thereof) may not be accepted, or at least emphasized much less. As work is
generally assigned to teams, rather than individuals, it may be difficult to convince
employees that accurately measuring the relative contribution of each person is
even possible. When everyone does whatever needs to be done at the time, the
concept of measuring individuals against specific objectives or performance stan-
dards is tough to defend.
The universalistic character of W/N cultures favors the same set of rules for
everyone, with performance measured against established expectations and
rewards based on appraisals. But close personal relationships may cause poor
results to be overlooked in particularistic cultures, as the relationship must be
preserved. It is hard for Western managers to accept this particularistic point of
view, as evidenced by the negative reaction to “nepotism” experienced in the U.S.
In Asian or Latin American countries, it may be reasonable to give preference to
family members because there is an established trust and a belief that the family
49 Third Quarter | 2008
members would not do anything to damage the family reputation or their standing
within the family, thus making them a better risk than a stranger.
Many E/S cultures believe that who is being evaluated and rewarded should be
a consideration. For example, in an ascriptive culture, if a graduate of a highly
respected university is contributing little to the organization, it might be assumed
that circumstances caused this. An ascriptive culture focuses on who the person is
and their status. As the person’s quality has already been ascribed to the person
by the status of that school’s graduates, it is difficult for evaluators to attribute
poor performance to the person. Therefore, the conclusion may be that the person
should not be penalized for poor results.
Another dominant belief in W/N cultures is that people are typically in control
of their destiny and should be held accountable (the “can do” culture). However,
a significant portion of the world’s population believes that fortune and external
forces determine outcomes much more than individual effort. For people holding
that belief, it is difficult to establish causation for good or poor performance
or to sell people on tying rewards to a measure of individual contribution.
This is particularly true when/if an employee extends his/her best effort. The top
HR executive of a major corporation in the Middle East once asked the author,
“How do you motivate someone who believes that no matter what they do, the
result is determined by Allah’s will?” Tough question.
W. Edwards Deming’s tenets of quality management posit that individuals should
not be held responsible for outcomes determined by the “system.” Companies in
W/N cultures often try to limit accountability to those things believed to be deter-
mined by individual effort. But job-related results are still viewed as the primary
basis for determining career/compensation consequences in the West/North. In a
collective culture, the tendency is to focus efforts on creating a consensus about
the best way to do something and then to attribute successes and failures to the
overall system, which includes everyone. This would argue for an egalitarian
distribution of rewards.
HYPOTHESES ABOUT THE IMPACT OF CULTURE
ON REWARD MANAGEMENT
The aforementioned contrasts between polar cultures can be compressed into test-
able hypotheses, which are related to the research of Trompenaars and Hofstede.
Hypothesis Number 1
Measuring individual performance and basing rewards on the appraisal will be
more acceptable in cultures that are individualistic than in cultures that are
collectivist. Employees from countries such as the U.S., the United Kingdom,
Canada, Denmark, the Netherlands and Australia tend to be more individualistic
in their orientation than employees from Egypt, Mexico, India, Japan, France and
50 WorldatWork Journal
Venezuela, who will be more likely to prefer performance be measured and
rewarded at an aggregated level, as they believe results require collective effort.
Hypothesis Number 2
Rewarding the individual for meeting performance standards will be more accept-
able in cultures that believe in internal control than in cultures that believe in
external control. Employees from countries with “can do” mind-sets, such as the
U.S., the U.K., France and the Netherlands, will more readily accept personal
responsibility for results than will employees from countries such as Venezuela,
China, Russia, Kuwait, Egypt, Saudi Arabia and India, who will be more likely to
believe outcomes are due to forces at least partially outside their control.
Hypothesis Number 3
Rewarding individuals based on what they accomplish rather than who they are
will be more acceptable in cultures that are achievement-oriented than in cultures
that are ascription-oriented. Employees from countries such as the U.S., Australia,
Canada, the U.K. and the Netherlands will tend to accept rewards based on what
people have accomplished more than will employees from countries such as Egypt,
Japan, China, Russia, Mexico and France, who will be more likely to believe the
individual’s status/qualifications should be considered.
Hypothesis Number 4
Employees from universalistic cultures will believe that the same policies, methods,
processes and standards should apply to rewarding all employees, as opposed
to those from particularistic cultures. Employees from countries such as Canada,
the U.S., Sweden, the U.K., Australia, the Netherlands and Germany will tend to
believe in one set of rules applying to everyone under all circumstances more than
employees from Venezuela, Russia, China, India, Japan and France, who accept
that the person’s identity and the circumstances should be considered.
Hypothesis Number 5
Employees from countries with low power-difference cultures will expect to partici-
pate in setting performance standards, determining results achieved and agreeing
on an appropriate reward with the supervisor. Those from high power-difference
cultures will be less willing to accept this approach. Employees from Germany,
the Netherlands, the U.K., Australia, Canada and the U.S. are more apt to be
active in the process and challenge the supervisor when there is disagreement
on performance or rewards than will employees from countries such as Mexico,
Venezuela, France and China.
These hypotheses, if supported, should be a consideration for human-resources
practitioners when designing reward-management systems for use across diverse
cultures. Knowing how employees are likely to react when they are evaluated
51 Third Quarter | 2008
and rewarded in particular ways is
valuable and enables HR to consider
what to do to, if anything, to accom-
modate cultural differences.
ONE GLOBAL REWARDS
STRATEGY OR MANY?
A global organization can adopt one
global-rewards strategy and set of
programs, use different strategies/
programs for each locale/country/
region or agree on a set of global
guiding principles and then allow
some latitude for local customization
as long as the principles are adhered
to. The more universal the strategy,
the easier it is to align all employees
and units with organizational values
and objectives. The more locally
specific the strategies, the easier it is
to conform to local laws, culture and
competitive practices. Organizations
attempting to use reward vehicles
such as stock options for all employees globally find that many obstacles are
presented by local realities: laws prohibiting ownership in foreign corporations,
dramatically different pay levels that make the value of the options enormous or
insignificant, data privacy laws blocking access to the information necessary to
administer the program, established local practices causing employees to view
the options differently, etc.
A global organization with a strong universal culture may wish to adhere to
the values and principles that guide behavior for all employees. However, the
factors just discussed can weigh in to force some relaxation of consistency and
to make local accommodations. Such an organization can rely more heavily on
expatriates to fill critical slots throughout all operations globally if it wishes to
ensure things are done according to corporate policy. The use of a global cadre
that is fully socialized can set the tone for operations everywhere, even when
they only occupy key management roles and work with workforces dominated
by local nationals. Although this practice has been used by MNEs headquartered
in developed countries, particularly the U.S., Britain and Japan, more developing
countries are adopting legal limitations on the use of “foreigners” and/or are
applying considerable social pressure to more quickly fill key slots with local
nationals. In October 2006, a government mandate was issued requiring all HR
RESOURCES PLUSFor more information related to this paper:
www.worldatwork.org Type in the following search keyword on the search line:
z Multinationals
www.worldatwork.org/bookstore
z The Best of Global HR: Five Years of International Articles from WorldatWork
z Compensating Globally Mobile Employees: How-to Series for the HR Professional
z Global Rewards: A collection of articles from WorldatWork
z Equity at Work: Constructing a Broad-based Stock Option Plan.
www.worldatwork.org/education
z GR1: Total Rewards Management
z GR7: International Remuneration — An Overview of Global Rewards
z GR9: Strategic Communication in Total Rewards.
52 WorldatWork Journal
directors in a major Middle Eastern country to be nationals within a relatively
short period of time, which sent employers scrambling to find qualified people or
to invest in high-speed training. A decision like this influences reward strategy,
as expatriate remuneration packages can be largely homogeneous, with focused
variations relating to different living costs and tax structures to keep expatriates
“whole” wherever they are assigned. The homogenization becomes more difficult
when local nationals and third-country nationals replace expatriates.
For a global organization concerned about the high cost of using expatri-
ates and/or the negative reaction to a globally homogeneous strategy in some
countries, options exist. Research shows that the use of expatriates is generally
declining, replaced by more short-term project assignments and extended business
commuting. Growth in the use of inpatriate assignments allows local nationals to
be brought into headquarters for extended periods. The purpose of these inpatriate
assignments may be to socialize future managers to the organization’s culture,
provide them with management training and/or have them educate corporate
personnel about their home countries and how to successfully do business there.
Infosys recently won an award for its program that assigns graduates hired in the
U.S. to India for a six-month tour to acquaint them with the company’s way of
operating and to socialize them into the Infosys culture before sending them back
to work in the U.S.
No matter which approach is used, it is inevitable that treating people differ-
ently with respect to their reward packages will create challenges. How dramatic
the differences are and how long they will persist will impact the reactions of
incumbents. Everyone is subject to the “grass is greener” syndrome when someone
else is treated differently. However, by understanding the potential legal, economic
and cultural conflicts that may arise, an organization can craft reward strate-
gies that minimize negative reactions or uneconomic practices. When the plant
manager in one country wants to distribute an incentive pool in an egalitarian
fashion and the plant manager in a neighboring country chooses to differentiate
between individuals/units, it is wise to understand why they would choose to do
this differently before mandating consistency. There may be much more gained
in the form of employee acceptance and motivation by allowing differences than
by insisting on similarity.
The increased use of global teams consisting of members from different occu-
pations/functions, different countries and different organizational levels raises
additional issues relating to reward strategy. Some team members may be co-located
while others are in different countries and time zones, causing them to interact
asynchronously. Although it would seem those working “shoulder to shoulder”
would be more concerned about reward consistency than those who are sepa-
rated, any differences in how and how much members are rewarded can be
divisive. If a Chinese engineer receives a $1,000 USD cash incentive award
while an American colleague receives $4,000 USD for a similar contribution,
53 Third Quarter | 2008
it may make little difference that the award is the same percentage of base salary
for both. If they shop together in San Francisco to celebrate the project’s success,
the difference in award size will be apparent. And if the team leader awards some
individuals more because their contribution is thought to be greater, the cooperative
fabric of the team could unravel. Such differentiation is apt to be viewed as inap-
propriate by members from collectivist cultures, even though they acknowledge
the value of the contributions of those rewarded more richly.
EVALUATING THE EFFECTIVENESS OF REWARD STRATEGIES
Evaluation of strategies and programs is typically done as an “after the fact” exer-
cise, often when things have deteriorated to an intolerable level. This is unfortunate,
as it is often too late to do anything but damage control. It is possible to perform
evaluations of why strategies and programs seem to work in some contexts and
whether other contexts are sufficiently similar to project success in those loca-
tions. This enables the organization to anticipate problems in transferring practices
across locations and cultures before they become a reality. For example, Lincoln
Electric prospered for decades in the U.S. with a reward strategy that consisted of
“output-based” rewards (a.k.a., piecework) for individuals and a gainsharing plan
that rewarded everyone for overall success. This highly successful strategy worked
reasonably well when it was implemented in the company’s new operations in
England and Mexico, but failed to gain acceptance in parts of Europe and in Japan.
The failure was largely due to cultural conflicts, which seemingly could have been
anticipated if in-depth research on the characteristics of each culture had been
done before attempting implementation.
CONCLUSION
Managing rewards globally requires an understanding of context, especially cultural
context. A strategy or program producing outstanding results in one place may be
ineffective somewhere else due to cultural differences. Every organization should
attempt to recognize, respect and reconcile those differences. By analyzing the
cultural diversity within its workforce, an organization can anticipate potential
problems and decide how to formulate strategy and solutions. z
54 WorldatWork Journal
Robert J. Greene, Ph.D., GRP, GPHR, CPHRC, is the CEO of Reward $ystems Inc. in Glenview, Ill. He has published more than 80 articles and book chapters and was awarded the first Keystone Award for attaining the highest level of excellence in the field by the American Compensation Association (now WorldatWork). He has designed and taught certification
courses and seminars for numerous professional associations around the world. Dr. Greene serves on the faculty for DePaul University in its master of business administration and master of science in human-resource management programs in the U.S., Europe and the Middle East.
AUTHOR
Hall, Edward T. 1976. Beyond Culture. New York: Anchor Books.
Hofstede, Geert. 1990. Cultures and Organizations. New York: McGraw-Hill.
Trompenaars, Fons and Charles Hambden-Turner. 1998. Riding The Waves of Culture: Understanding Diversity in Global Business. 2d Ed., Nicholas Brealy. New York: McGraw-Hill.
Trompenaars, Fons and Charles Hambden-Turner. 2004. Managing People Across Cultures. Hoboken, N.J.: John Wiley & Sons.
REFERENCES
A Globally Mobile Workforce: HR’s Role
W ith the ever-growing number of employees
stationed around the world, the design and
administration of benefits and compensation
programs for international assignees has become more
complex. This paper focuses on applying a global
perspective to talent and on how this new viewpoint
changes the way human-resources professionals need to
manage and use global mobility as a tool when creating
workforce strategy plans. By proactively employing a
global-mobility strategy, HR professionals can ensure
their global-mobility programs play a vital role in the
organization’s overall workforce strategy.
The term global mobility refers to the purposeful cross-
border deployment of employees to accomplish one or all
of the following goals: execute a specific business objective,
develop an individual’s global-leadership skills and/or
instill a corporation’s global-mission initiative. Global
mobility, so defined, elevates its role from a tactical event
to a strategic practice and separates it from the adminis-
trative and limited terms of relocation and international
assignment management. HR has traditionally created
policy and managed expatriates on temporary interna-
tional assignments. Yet this newly emerged definition of
HR Strategy z
Adele M. Yeargan,
CRP, GMS, GPHRHewitt Associates
Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
56 WorldatWork Journal
mobility now encompasses short-term assignees, regional commuters, rotational
assignments and one-way permanent international moves. The author’s experience
also proves that companies often include extended business trips in their defini-
tion of mobility as well — due to tax and work permit compliance concerns, and
domestic, intra-country moves — due to their unique workforce challenges within
emerging-market countries.
HR’S ROLE IN GLOBAL MOBILITY MUST MOVE
FROM TACTICAL TO STRATEGIC
It is essential for HR (both local and global) to view itself as part of the global-
workforce solution. The previous best-practice policies no longer adequately
respond to an organization’s needs. HR needs to adapt — fast.
The changing business climate requires an agile and deliberate HR attitude,
as well as the infrastructure and planning that can be both strategic and tactical
to support mobility in all of its new guises. It is the author’s experience that a
dynamic workforce demands the use of various types of assignments, cross-border
relocations and multifaceted international hiring practices, such as local foreign
hires, virtual teams and permanent moves.
Mobility has always played a tactical role within HR, but rarely has it been
elevated to a strategic position. Until now, the typical domestic policy has covered
relocation benefits with the understanding that the move was permanent or
one-way, whereas international policy was designed around a temporary period,
usually short (three months to a year) or long (one to five years). As such, these are
not merely physical moves but defined “assignments,” which require thoughtful,
strategic workforce planning to ensure the best use of talent, considering the
complex, multijurisdictional realities of crossing borders.
As a practical example, consider the growth in domestic mobility within coun-
tries where relocating was not a common practice one year ago (e.g., China and
India). The complexities surrounding domestic moves in these countries are more
akin to an international than a domestic move in the United States or the United
Kingdom. Moving within an emerging market, region or country varies from city
to city, presenting barriers to relocation (from education for children to variable
dialects and the ability to leverage local networking to facilitate business relation-
ships). This creates the need for companies to look at each location and the local
landscape strategically to make the right staffing decision for the business, while
also addressing the issues facing the employee and family and providing the solu-
tions to facilitate relocation.
HR cannot only play a strategic role, however. The tactical elements and
complexities of global mobility remain and require solid HR policy and procedure
to manage effectively. There are many aspects of compensation, tax treatments
and reporting, work-permit compliance and benefits (ranging from pensions to
medical coverage) to consider. And, corporate liability for tax withholding —
57 Third Quarter | 2008
even for business travelers — is getting more stringent as governments are seeking
to maximize tax revenue and ensure a tighter control over international labor and
work-permit availability. It is not unusual to see Bill Gates, Microsoft chairman,
lobbying the United States government to ease visa quotas so companies can
have freer access to talent from whatever country can produce it. These country-
imposed limitations lend to the growth of offshoring as companies shift to capture
labor advantages.
HOW MOBILITY CAN CONTRIBUTE TO A GLOBAL WORKFORCE STRATEGY
With vision and practical planning, mobility can be an organization’s newfound
strategic device. A global-mobility strategy is not without its challenges in effective
application and execution, but with a well-thought-out policy and strategic workforce
objectives, companies can enhance many aspects of their workforce acquisition,
placement and management with an effective global-mobility strategy.
To understand global mobility’s reach and consequent impact on a company’s
global-workforce strategy, consider it within the framework of each of these critical
areas of HR management:
z Talent management and development
z Compensation
z Performance and return on investment (ROI)
z Learning
z Compliance and risk management.
Talent Management and Development
Many progressive, flat organizations use international mobility as part of the
requirements for career growth and even require such experience as a means
to attain executive positions. A successful global-mobility program can produce
dividends for the company and the individual. In many areas, mobility can affect
talent at crucial points in their career — such as attraction, development and
retention. The author has found that performing candidate assessments is a great
first step to ensure preparation for an assignment. To truly capitalize on this
evaluation, organizations need to follow through and use this insight to develop
career plans and build candidate pools for assignments in general and global
leadership roles, in particular.
Using international assignments to develop global working skills provides
cultural exchange opportunities (corporate and geographical), leading to the
development of a profound depth of skill for management in a global and diverse
environment. More organizations are realizing the investment value of this inter-
change of both culture and skills and are being creative and strategic in how they
manage global talent to maximize tangible returns. This visible, global image for a
company attracts a wider and more sophisticated talent pool from which to recruit.
(More information on this topic can be found in the work of Black, Morrison and
58 WorldatWork Journal
Gregersen, (1999), where they cite the four T’s of global-leadership development
(travel, transfer, training and teams)). From a cost-management perspective, devel-
oping candidate pools can offer the company an international choice for talent
placement. With certain citizens having worldwide income-tax implications, a pool
could offer alternative candidates who are less costly to move. Candidate pools
may no longer be limited to key talent focus but can be broadened to include a
wide span of skills and band levels.
Compensation
As organizations begin to see cross-border mobility as more of a standard and
required operating practice to meet business objectives than a specialized role
or career event, compensation programs and packages will need to address the
complexities of equity on the global playing field — in reality and perception.
And global-mobility experts can help.
As experts in this field know, it is a near-impossible task to level set global-
compensation structures due to the country-to-country variables influencing an
overall package, such as pensions and social programs. Yet, it is this highly critical
aspect of HR management that provokes questions and skepticism from govern-
ments and employees as they attempt to scrutinize corporate practices to ensure
fair and equitable treatment.
The basics of supply and demand are at the core of this subject, and will
continue to define how talent is paid, for years to come. Even so, myriad examples
exist of how companies operate with what appears to be a blind view to the world
around them. This includes the common notion that expatriates are more expen-
sive than local talent. In reality, in developing countries such as India, Westerners
are now more economical and more available than local employees at the top
manager level. Just as companies seek new labor markets to gain cost advantages,
this financial edge shrinks rapidly as local economies are quick to mature and
demand equity for labor as well as other local operating costs.
What commonly results from a misalignment among compensation, mobility
and talent management are hybrid assignments. Although a sophisticated-sounding
label, they are usually, at best, a policy work-around used to create individual
“deals” with employees. HR’s complicity with the business to get employees where
they need them at a price point they feel they can afford — and with terms that
the employee is willing to accept — eliminates the opportunity to put in place
appropriate expatriate terms that would establish the employee on a more local
package with the unspoken intent of repatriation. The business justification is
that this makes the move cheaper than a full expatriate and, hence, affordable.
The equation’s other side is that these types of “deals” tend to be assembled
without an understanding by regional HR of a strategic downside to overall
workforce management including potential employment law and/or tax (corpo-
rate as well as individual) compliance concerns. The organizational dysfunction
59 Third Quarter | 2008
in managing these types of assignments as common and accepted can become
difficult to reverse, as the practice quickly is entrenched into a philosophy about
talent assignments. Ultimately, the effect of condoning this approach leads to
visible inequity due to the blurred nature of the employee’s status as neither a full
expatriate nor a normal local employee, and the assignee is at risk of becoming
disenchanted with the company’s lack of support and global sophistication.
A global organization needs a strategy to address issues such as business timing
and cost. Expatriate compensation packages are an essential part of that design
and planning. If the business struggles to afford a standard assignment package,
it may be prudent for the organization to subsidize the assignment so it is done
correctly. Compensation professionals need to guide and lead in this area so the
organization can capitalize on the bigger picture. Clear direction to local managers,
HR and foreign payrolls is necessary on all aspects of compensation. It may be
necessary to build the case for a shared-assignment cost model between business
and corporate, with specific emphasis on a career path for the assignee (global
leadership and management positions). Companies should combine the business
need and the management-development investment goals into one calculation,
with a systematic plan to support, sustain and integrate the assignment into a
developmental structure.
Managing the administrative aspects of compensation for global assignments
requires a detailed cycle of tasks. Seek opinions from international-tax professionals
and ensure a stringent approval process for authorization on compensation and
subsequent changes to prevent local practices infiltrating an international package
that was designed to maximize cost savings and tax-planning options. Scrutinize
the way each aspect of compensation is important. Consider annual raises. Should
this be applied to an expatriate package if the package is already structured for the
position and time frame of the assignment agreement? Repatriating the employee
into a particular band structure raises potential issues. Assume there will be local
costs, tax impacts or withholding requirements applied, whether it is base salary,
annual raises, bonus, commissions or stock options.
It is unlikely that a single global policy or approach could address such complex-
ities. But a global corporate standard that links each functional HR segment
with appropriate regional guidelines can support a platform for a wide range of
functional policies to address business objectives and manage costs and compli-
ance. This ensures the integrity of the corporate vision and the workforce most
organizations are striving to attract, motivate and retain.
Policy development is only one step in any process to effectively administer
a global expatriate event. Compensation, the required cost of living differentials
and the excess tax cost are the major administrative elements of an assignment.
The common guideline that an expatriate assignment is two to three times the
domestic cost is based on using a tax-planning methodology. Without that meth-
odology, the cost can be significantly more. Other areas, such as health benefits
60 WorldatWork Journal
and retirement and pension plans, also add complexity and cost to the programs
to stay compliant and competitive. Although there are agreements in place across
numerous countries to avoid the duplication of payments into a host country’s
pension scheme, the agreements do not always work. In the case of global nomads
(individuals with multiple assignments throughout their career), the condition of
not having any single-country program fully funded can lead to a genuine pension
dilemma for these employees. Policy can address some of these elements, but the
corporate community has few options to practically and comprehensively manage
these details on a global scale. Regardless of the size of an expatriate program,
having the most up-to-date sources of information and broad delivery capabilities
is required to effectively track taxability, thresholds on local tax requirements
and country-to-country treaties that can reduce costs. A single, turnkey solution
is generally unavailable when one’s expatriate population is small, yet the appro-
priate actions are still required.
With a significant expatriate population, it becomes possible to create an
in-house solution to these complex compensation issues, but maintaining the most
up-to-date and scalable subject-matter expertise on staff — from compensation
through taxation — is a daunting task. Historically, companies relied on inter-
national tax firms to plan for and prepare tax returns. And, in about 20 percent
of cases, companies use these firms’ full-assignment administration platforms.
Amazingly, almost 69 percent of companies do not utilize any formal method,
internal or external, to track assignments (Deloitte and ORC Worldwide 2007).
With tightening restrictions for tax firms on how, what and with whom they
can deliver services due to Sarbanes Oxley, their scope of services is narrowing
with certain clients. Although this service option will not likely withdraw from
the market completely, the need to leverage a complementary team of service
providers is emerging as a viable alternative. Resources from HR outsourcing
and HR consulting are effectively integrating with HR and tax professionals, and
facilitating comprehensive assignment compensation tracking, relocation manage-
ment, tax reporting and pay delivery.
Performance and Return on Investment (ROI)
A formal set of measurable goals and achievements is needed for HR to truly
measure successful mobility. HR must have a strong commitment to defined
metrics for global mobility; otherwise, assignments cannot be valued appropriately.
A recent study by Deloitte and ORC Worldwide found that more than 86 percent
of the multinationals surveyed did not track any metrics related to international
assignment results. As a consequence, business managers will continue to rely
on assumption and hearsay to determine if an assignment is viable, never really
knowing whether an expatriate is worth the cost. The author has found that short-
term assignments are frequently used in a back-to-back fashion without any cost
61 Third Quarter | 2008
analysis on results achievement or whether a single expatriate assignment would
have been more effective, without any added cost.
It is possible to achieve a clear and defined return on global-mobility investment,
but it requires an integrated, cross-HR effort. An organization must use an integrated
methodology, including the business case, individual performance tracking and career
development, to achieve an objective view on financial returns and human capital.
Aspects to address, in addition to the assignee’s job goals and the financial business
results, are actual assignment costs compared to the original and ongoing busi-
ness case. Also, long-term retention results can be measured as part of an overall
return-on-investment (ROI) strategy to integrate assignment experience back into
the organization upon repatriation. The strategic value equation for a long-term ROI
calculation remains HR’s responsibility as it crosses between long-term corporate
and short-term business objectives. HR is best positioned to demonstrate the value
of a global workforce and programs to facilitate an agile response for current and
future demands of global business. Consider the following process:
z Structure a clear business case for the assignment, and have defined financial
achievements.
z Perform an assignment cost projection and track ongoing costs.
z Build performance goals tied to the business case into the assignment.
z Monitor progress in an appropriate time frame (annually for long-term assignments,
post-assignment for short-term assignments, etc.).
z Compare assignment cost to business-case achievements.
z Factor in career-path, leadership and talent development.
Learning
Global organizations can learn from the few companies that truly live a global
vision. Whether it is a requirement that all executives have had international
assignments or that business leaders are chosen based on their diversity as well
as their skills, a clear vision and genuine commitment to that vision are what will
“globalize” an organization’s management and mind-set over time.
Both domestically and globally, a number of learning-related activities can be
instituted to quickly bring global diversity and operational practice to reality.
Cultural training for individuals and work teams can enhance positive working
awareness and effectiveness. This applies for virtual work teams as well as
employees on assignment working in a culturally different work environment
or region. In addition, training the receiving team is also important. It has been
perplexing that there has been an effort to train the expatriate manager to under-
stand the culture where he/she will work, yet not train the team with whom the
expatriate will manage about the culture of the expatriate. It is that myopic, and
often cost-centered, thinking that dominates the tactical process — it leaves no
room or expectation to consider creative actions. The cost/benefit of training the
entire team to understand each other’s culture, behavior and perspective creates
62 WorldatWork Journal
a more productive team in a shorter period.
It is important to remember that critical corporate oversight can dramatically influ-
ence global initiatives on a regional level when there is a realization that a shared
investment can produce broad and lasting results.
Compliance and Risk Management
Possibly the largest barrier to global mobility is the free movement of labor.
Each country has its own complexity of laws and unique levels of bureaucracy
for providing work permits. If an organization does not invest in a structure to
oversee and track its workforce when it crosses into other jurisdictions to work,
the risk of operating illegally, attracting fines, and tax obligations is genuine.
This is no simple matter to track, control and manage on a global basis. Therefore,
this oversight rests with HR and others. It requires the support and commitment
of corporate legal, finance and tax, although it is best structured as a partnership
with HR. One reason this is challenging to manage is that compliance applies to
more than merely cross-border assignments. Business travelers and virtual workers
are also a part of an overall tracking initiative.
Although compliance may not have been an issue for most companies in the past,
that is quickly changing. With passport scanning at every border, governments
are far better equipped to track individuals entering their country — knowing the
exact number of days spent in-country by each individual. Be forewarned: when
it becomes an issue, it will be a costly one, with financial and public-relations
consequences. Managing strict immigration and work-status compliance is critical,
because it is closely tied to tax reporting and payroll withholding and can affect
corporate taxation and exposure. Corporate tax and finance departments should
be engaged, aware, and accountable for the strategic decisions surrounding global
talent management, including its mobility.
To manage risk appropriately, a comprehensive global-risk assessment as part of a
global-business plan is helpful. This needs to integrate with and apply to any glob-
al-expatriate program or workforce outside of the company’s domestic environment.
A 2003 survey, conducted by the Foreign Policy Center in the U.K., noted that less
than one in 10 small- to medium-sized international companies working in risky
environments provided any training for their international staff for their personal
safety (Briggs 2003). The reason cited was that there was “no convincing business
case.” Leading experts agree that the business case is the staffing requirement itself.
Most corporate cultures would not purposefully avoid such training, and companies
are improving, but a mandate from corporate risk and an associated policy to guide
a consistent training program worldwide is critical.
It is essential to have progressive and well-communicated safety plans for all globally
mobile staff. Developing these plans in tandem with corporate security and engaging
communications to support ongoing information distribution will achieve the best
results. Clear security information, defined crisis-management and business continuity
63 Third Quarter | 2008
plans are integral aspects of the cost
of doing business, but even more so
in the global arena where it extends
to families and is a 24/7, 365-day-a-
year necessity. Factors such as health
issues, culture, political environment,
terrorism, crime and even transporta-
tion need to be considered.
CONCLUSION
Harmonizing HR with global-mobility
and strategic-workforce planning
can create policies and practices
that are nimble enough to respond
to changing business needs. With a
globally oriented vision for organiza-
tional structure, HR can:
z Bring the vital leadership to ensure
oversight on talent management.
z Bring effective and consistent
administration adaptable to busi-
ness needs and workforce dynamics by region.
z Provide a fair, reasonable and consistent employee experience.
z Meet all the jurisdictional, legal and tax-compliance requirements, both for
companies and for individuals.
In summary, the HR professional can do the following differently to adapt to
this environment:
Proactively review current mobility policies and practices:
z Evaluate if they are country centric (e.g., largely U.S. to international).
z Adapt or expand to have a broader view to mobility, globally, regionally and
country-specific. Standardize (where possible and relevant) with an eye to local
needs and parameters.
z Perform an analysis and management approach by assignment type.
- Nonlong-term expatriates: Authorizations, local laws and practices, tax with-
holding, time-in-location tracking, etc.
- Commuter, short-term, business travelers, rotational assignments
- Global nomads (employees with back-to-back assignments).
Evaluate current methodology for reporting expatriate compensation:
z Take appropriate tax-planning steps, including leveraging treaties and recouping
tax credits.
z Develop on-assignment management procedures.
z Identify and address home and host payroll integration gaps.
RESOURCES PLUSFor more information related to this paper:
www.worldatwork.org Type in the following search keyword on the search line:
z Expatriates.
www.worldatwork.org/bookstore
z Compensating North American Expatriates: How-to Series for the HR Professional
z The Best of Global HR: Five Years of International Articles from WorldatWork
z Compensating Globally Mobile Employees: Global Rewards
z A Collection of Articles from WorldatWork: How-to Series for the HR Professional.
www.worldatwork.org/education
z GR1: Total Rewards Management
z GR7: International Remuneration — An Overview of Global Rewards.
64 WorldatWork Journal
Review procedures for managing logistics affecting expatriate compensation
and taxation:
z Plan for expense payment tracking at the local level, with the ability to aggregate
on a global level.
z Identify per-diem and/or cost-of-living supplement methodologies and tracking.
Develop performance criteria and ROI:
z Perform an assignment cost-benefit analysis assessment through actual financial
costs and deliverables.
z Develop and enhance the candidate pool.
z Proactively integrate career paths (executive placement criteria through
expatriate experience).
z Apply and evaluate current methodology for tracking and reporting expatriate
compensation.
Learning:
z Train for cultural awareness.
z Establish required education programs as mandatory.
z Use Web-based training.
Compliance and risk management:
z Assess procedures to track cross-border compliance for work permits and tax
reporting for official assignments and discrete movement (e.g., business travelers).
z Integrate the expatriate and nondomestic workforce into corporate-risk
assessment and planning.
z Inform legal and compliance teams of corporate liability issues related
to global mobility.
z Communicate shared responsibilities with mobile employees.
z Identify the risks, and establish agreed levels of risk tolerance.
z Establish preparedness plans for prevention and response. z
Adele M. Yeargan, CRP, GMS, GPHR, leads Hewitt Associates’ global mobility services practice. Her team manages assignments active in more than 70 countries. She specializes in developing strategic programs to harmonize a spectrum of services and disciplines surrounding global mobility and workforce
management to effectively respond to a dynamic business environment. Yeargan also consults on the design and implementation of policy and operational procedures and has done business in more than 36 countries. She can be reached at [email protected].
AUTHOR
Black, J. Stewart, Allen J. Morrison and Hal B. Gregersen. 1999. Global Explorers: The Next Generation of Leaders. New York: Routledge.
Briggs, Rachel. 2003. Doing Business in a Dangerous World. London: The Foreign Policy Centre.
Deloitte and ORC Worldwide. 2007. “Global Mobility Program Management Survey.”
REFERENCES
China and Total Rewards:A Look at Workforce Issues and Business Strategy
W ith the global economy and demographics
changing, total rewards professionals are
facing new challenges including how to
leverage labor supply and demand globally, and how
to design reward systems that are aligned with their
organizations’ business strategies and vision yet flexible
enough to adapt locally.
To meet the staffing issues that many organizations
will face with an aging workforce and the resulting
possible labor shortage, China could be a primary
alternative choice for businesses striving to meet their
talent-management challenge. China has growing busi-
ness relationships with the rest of the world, and it can
provide a large workforce; it has large economic devel-
opment potential, and it has a low cost of production.
Businesses with their home offices outside China are
already are inside China but, in some cases, struggle
with human-resource issues that were previously unen-
countered in other locations. According to the “Global
Relation Trends 2003/04 Survey Report,” (GMAC Global
Relation Services, National Foreign Trade Council, SHRM
Global Forum (2004), China is one of the most frequent
HR Strategy z
Pengpeng ZhouUniversity of Minnesota
Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
66 WorldatWork Journal
and primary destinations for international expatriates, but it does present challenges
for expatriates and administrators.
The key to being better prepared to conduct business in China is to establish a
total rewards system that is consistent with an organization’s business strategy and
that can be adapted to various emerging conditions. Many multinationals follow
this tactic (not only in China but worldwide) and it was discussed in a paper in
this publication by Robert J. Greene (2008), who wrote:
A global organization can adopt one global rewards strategy and set of
programs, use different strategies/programs for each locale/country/region
or agree on a set of global guiding principles and then allow some latitude
for local customization as long as the principles are adhered to. The more
universal the strategy, the easier it is to align all employees and units with
organizational values and objectives. The more locally specific the strategies,
the easier it is to conform to local laws, culture and competitive practices.
CHINA’S TIGHT LABOR MARKET
Two basic, and usually misleading, factors influence the development of a total
rewards program in China: (1) a low labor cost and (2) a large population, which
many feel translates to a large workforce.
Low Labor Cost (But How is the Quality?)
The cost of labor is generally low in China. While benefits are at least partially
handled by the state and training is not a large expense, it is the low wages that
attract many companies. To cite an example in the compensation area, the Jan.
28, 2008, BusinessWeek reported (based on information from Mercer) that the
salary of a data-entry operator in the country is $4,034. In contrast, that position
will earn close to $31,000 in Japan and $35,400 in the United States. Similarly,
the head of sales and marketing in China will expect to earn $92,402. In Japan,
that position would secure more than $163,000 and in the United States, the
position’s salary would exceed $220,000 (McGregor 2008). The low cost of labor
attracts companies to China, as the manufacturing sector in China pays its workers
between 2 percent and 3 percent of the U.S. level on average. But two hidden
factors behind the low cost should be considered.
First, the low wages provide much lower productivity (The Conference Board
2006). The lower-cost labor productivity is at 12 percent to 13 percent of U.S. labor,
although China’s labor makes it one of the most competitive manufacturing nations
among the nations with similar labor costs. An unfortunate result of the low produc-
tivity, the low wages and the low level of training can be the low quality. The lack of
skills training for Chinese workers plays a major role in causing the quality concerns.
Organizations in China invest minimally to train their employees. In addition, organi-
zations don’t train and develop their employees in China, as the retention issue looms
large in the Chinese labor market. This applies to skilled and unskilled labor.
67 Third Quarter | 2008
Second, while studies show that global salaries increased by an average of 5.9
percent in 2007, China’s gross salary increase rate is 7.2 percent (Mercer Human
Resource Consulting 2006), and the large salary increases are part of what some have
referred to as a “pay bubble” in the region. The high salary increases are a reflection
of the low base wages and are a part of the retention issue. Hay Group’s Roland Ruiz
put the description of the rapidly increasing wages best when he wrote (2007):
In China, when Chinese employees are lured away from their current jobs,
they pocket at least 40 percent more in base salary, on top of a promotion
(both in job scope and title). This compares with an average base salary
increase of 24 percent in Singapore and 21 percent in Hong Kong. However,
are companies in China seeing a 40 percent return on their pay investment
in terms of productivity, revenue or profitability? How long before this pay
bubble bursts?
Large Workforce (But Becoming Smaller)
China has the world’s largest population, but a large population doesn’t translate
to a large workforce. China will experience a dramatic population aging during
the next 40 years.
According to United Nations Population Projection (1998), China will have about
630 million people who are age 50 and older in 2050; with 529 million ages
20-49, and only 324 million under age 20 in 2050. The projection is, by the year
2025, only 30 percent of the population will be in the workforce. In comparison,
50 percent of the population was in the workforce in a period beginning in 1950
and until 2010.
The “one child per family” policy in China brought a declining birthrate and
contributed to an aging population, with this projected long-term worker shortage
(Xin and Sankar 2007).
THE ROUTE TO SUCCESS
Xin and Sankar (2007a) also noted:
In a 2006 Mercer survey of business leaders in China … the highest-ranked
concerns were building leadership capabilities (87 percent), acquiring key
talent (66 percent) and retaining key talent (64 percent) …. China’s CEOs are
asking human resources to play a critical and accountable role in addressing
these concerns.
So the HR issues of attraction, motivation and retention, which are important in
many countries, are also significant in China.
Attraction
According to O’Neal and Chai (2007), “Employment advertisements, campus hires
and job fairs are the key recruitment channels for entry-level and junior employees.
The Internet also has become popular for recruiting junior and midlevel employees,
68 WorldatWork Journal
especially among multinationals
and in private enterprise. There is
an increasing use of ‘headhunters’
for senior openings and a recog-
nition that the correct balance of
rewards is essential to recruit, retain
and engage the workforce that will
ensure China’s future.”
One way to attract Chinese talent
is by borrowing Best Buy’s China
marketing strategy; that is, use the
brand name to its fullest advantage.
Unlike in many countries (including
the United States and Canada), Best
Buy store employees in China lay out
store shelves by brand name rather
than product category. This strategy
attracts consumers, as the mass media
in the past 15 years has convinced
the population that a recognizable
brand name is connected to social status. This is the case for Chinese of all
ages. The better the organization brand name and the more attractive the corpo-
rate culture, the more effective a company will be in attracting talent in China.
There is a saying in China that it is better to sweep Microsoft’s floor than become
the CEO in an unknown company.
However, keep in mind that a strong brand name in the parent country doesn’t always
translate to the correct reputation in China. For example, some Chinese believe that
Accenture is a golf-ball manufacturer, as its advertisements feature Tiger Woods.
Motivation (and Engagement)
Two primary motivators for a Chinese worker are to be perceived as “working
hard” and to accumulate wealth. So recognition programs in China (some attached
to local customs) are appreciated by the workers. Wealth accumulation is primarily
accomplished through a paycheck.
A 2006 study reveals that only 2 percent of Chinese workers’ attitude is reflected
in the phrase “Never think of yourself, give in service to society,” whereas 26
percent of workers agreed with the statement that translated to “Don’t think of
money/fame; live a life that suits my own tastes.” (McEwen, Fang, Zhang and
Burkholder 2006). This seems surprising considering the Communist Party of China
(CPC) directed the country under a single-party system since the state’s establish-
ment in 1949, when the population was encouraged to “give in service to society.”
However, beginning in late 1978, the leadership in China began reforming the
RESOURCES PLUSFor more information related to this paper:
www.worldatwork.org Type in any or all of the following search keywords on the search line:
z China
z “Total Rewards in China.”
www.worldatwork.org/bookstore
z Global Rewards: A Collection of Articles from WorldatWork
z The Best of Global HR: Five Years of International Articles from WorldatWork.
www.worldatwork.org/education
z GR1: Total Rewards Management
z GR4: Base Pay Management
z GR7: International Remuneration — An Overview of Global Rewards.
69 Third Quarter | 2008
economy from a centrally planned program to a more market-oriented economy.
Some describe this as going from “socialism with Chinese characteristics” to “capi-
talism with Chinese characteristics.” So the trend is: Instead of worrying about
basic food or living needs, more Chinese workers are concerned about the gaining
a better taste of their own life.
Many organizations perceive Chinese workers as highly dedicated to their work.
But one survey indicates that 68 percent of employees don’t feel engaged, and 88
percent of employees were not interested in their jobs (Gallup 2004). A Towers
Perrin survey (O’Neal and Gebauer 2006) a year later defined engagement as the
willingness and ability to contribute to the organization’s success and went on to
report that only 8 percent of the surveyed workers in China were “highly engaged.”
In the United States, that number was 21 percent. In Canada, it was 17 percent.
Further, 25 percent indicated that they were “disengaged.” By comparison, that
number was 16 percent in the U.S. and 17 percent in Canada.
O’Neal and Chai (2007a) indicate that “engagement is dependent on a broad mix
of reward elements, including teamwork and fair criteria for pay.”
It is difficult to engage the worker in this country, partially because many
opportunities and alternatives (especially for top talent) exist. This raises the issue
of employee retention in China.
Retention
The Hay Group’s data shows that many companies, especially foreign multinational
companies, struggle to keep an employee in the same job for more than two
years, and local Chinese managers are, on average, five years younger than their
counterparts in Asia. Companies in China find that they must strike a fine balance
between readiness and retention. Otherwise, their competitors will “promote” and
“reward” their employees for them (Ruiz 2007a).
Leveraging the compensation portion and career-development opportunities
associated with a total rewards program may be the most important step to
retaining talent. For skilled employees, provide various forms of benefits and
involve cash payment as a strategy to prevent competitors from “stealing” talent.
For nonskilled employees, higher base pay is the key to retention (Wang 2007).
A Watson Wyatt Worldwide survey in 2005 found Chinese employees stay with
companies for:
z Good career opportunity: 30 percent
z Good compensation package: 29 percent
z Good training and personal development opportunities: 29 percent.
Total rewards professionals should consider strategies that make their company
different to the local workers. For example, a China Youth Daily-Sina.com
survey found that 73 percent of the 74,379 respondents said they never enjoyed
“any paid vacation.” A “paid vacation” could make the total rewards program a
real standout.
70 WorldatWork Journal
A BusinessWeek report (2008) seems to indicate that businesses should be
prepared to operate a benefits program with some features not found in the typical
North American company. The publication reported:
Companies operating in China are required by the government to chip into
a housing fund that’s available to their Chinese employees, who also make
contributions. When employees are ready to buy a home, they can draw
from the funds to help. About 20 percent of multinationals currently chip in
more to the housing fund than required, according to Mercer.
Multinationals further need to recognize the local labor market’s conceptions
of the various elements of the total rewards packages. In such a large country,
many different subcultures exist, and compensation-package designers should pay
particular attention to those subcultures. For example, married managers must give
a “red envelope” with different amounts of cash to unmarried employees during
the Chinese Lunar New Year. But this is popular only in southern China.
Different geographic locations require different salary levels. In the first-tier cities
including Beijing, Shanghai, Shenzhen and Guangzhou, salary could be doubled the
salaries in second-tier cities including Chongqing, Hangzhou and Chendu. But it might
be a mistake to move from first-tier cities to second-tier cities. In 2005, the first-tier
cities’ salary increase rate was 8.7 percent, while the second-tier cities’ rate was 11.4
percent (Hewitt Associates 2005). Xin and Sankar (2007) also explain:
Moving people from city to city is complicated in part because social
security and pension payments made in one city cannot be transferred to
another. Social and cultural factors can also limit mobility, while the wealth
of jobs available in the great coastal cities means there is little incentive
for workers to move.
In considering product development, there are transportation concerns in the
second-tier cities that could delay delivery time and increase costs.
THE ADVENT OF A NEW LABOR LAW
China is in the midst of its biggest modernization of labor laws and labor-market
regulation, which began Jan. 1. The labor reforms grant the individual worker more
employment protection rights enforceable by law and mean more legal certainty
for foreign employers.
“We regard the planned Chinese labor-law reforms as a breakthrough and big
leap toward international labor-market standards. Collective wage agreements,
employment rights that are enforceable by law, and dismissal protection no longer
remain taboos in China. The new labor laws have unmistakable German and British
flavors. It is a good example of China’s increasing openness to adopt foreign best
practices,” said Wolfgang Clement, chairman of the Adecco Institute and former
German minister for Economics and Labor. China’s labor reforms focus on individual
employment protection, emphasizing written labor contracts, employment promotion,
labor dispute conciliation and arbitration, equal pay and long-term job security.
71 Third Quarter | 2008
“While the new laws may contribute to raising unit labor costs over time in
China, for example through salary raises, there will also be significant benefits
to foreign firms, giving corporate leadership more clarity and certainty about the
future direction of Chinese labor regulations,” said Peter Siderman, managing
director of the Adecco Institute.
The new laws provide a strategic road map for the next 10 to 15 years. They will
slow the rapid rate of workforce turnover and bring more procedural transparency
to labor-dispute resolution. They provide better protection for trade secrets and
incentives for employers to invest in vocational training for workers. They also
permit new forms of flexible work and third-party labor placement.
“Perhaps most importantly, the Chinese government will enforce new labor laws
across all provinces in a more effective way than until now. This would be one of
the most spectacular, confidence-building reforms in new China,” Siderman said
(Adecco Institute 2007).
But not everyone is wholly optimistic about the new law, admitting that chal-
lenges lie ahead. In January, Donald Straszheim, the vice chairman of Roth Capital
Partners in Los Angeles and the former global chief economist at Merrill Lynch,
wrote on the Forbes Web site:
The thrust of this is somewhere between scary and encouraging. Working
conditions in China are just awful for literally tens of millions of workers, as
they are in most emerging economies. China is certainly still an emerging
economy despite the skyscrapers, trade growth and the upcoming Olympic
Games. But I believe the new law goes too far, giving more protection
than is healthy for an economy as dynamic and fast-changing as China.
The ability for businesses to adjust to changes is crucial. While there are
many pluses in the new law, hiring and firing flexibility is sharply curtailed,
hiking labor costs and potentially becoming a drag on innovation and
productivity. The law dramatically shifts the employer-employee balance
of power to the employee.
So many challenges are ahead. z
Pengpeng Zhou is a recent graduate from the University of Minnesota, with a master’s degree in human resources and industrial relations. She interned at Microsoft, where she gained experience in leadership development as well as training and development. She received a scholarship for an MBA exchange program
from the United Kingdom’s Manchester Business School, and studied and worked in international busi-ness and human resources for four years in France. She is working on an employee development project in China, and began working on global HR issues at Cargill European headquarters in Belgium in August.
AUTHOR
72 WorldatWork Journal
Adecco Institute. 2007. “China prepares for historic labor law reforms — more rights and better protection for workers mark shift towards global standards.” Press release (Dec. 5). http://www.adeccoinstitute.com/Adecco_Institute_Press_Release_China_Labor_Market_English_Dec_5_2007.pdf. Viewed: June 25, 2008.
The Conference Board. 2006. “Low Wages Not Always Key Success Factor for Overseas Investment.” Oct. 4.
Gallup. 2004. “Living to Work” Chinese Employee Survey.
GMAC Global Relocation Services, National Foreign Trade Council, SHRM Global Forum. 2004. “Global Relocation Trends 2003/04 Survey Report.” May.
Greene, Robert J. 2008. “Rewards Management In Multinational Enterprises.” WorldatWork Journal. Third Quarter: 51.
Hewitt Associates. 2005. “Survey Average Salary Increase by City, China 2005.”
McEwen, William, Xiaoguang Fang, Chuanping Zhang and Richard Burkholder. 2006. “Inside the Mind of the Chinese Consumer.” Harvard Business Review. March.
McGregor, Jane. 2008. “The Right Perks.” BusinessWeek. Jan. 28: 43.
Mercer Human Resource Consulting. 2006. “A Global Perspective on 2007 Compensation Planning.” September.
O’Neal, Sandra and Eric Mingang Chai. 2007. workspan. November: 105.
O’Neal, Sandra and Eric Mingang Chai. 2007a. workspan. November: 102.
O’Neal, Sandra and Julie Gebauer. 2006. WorldatWork Journal. First Quarter: 13.
Ruiz, Roland. 2007. “Asian Pay Bubble: A View from the Ground.” workspan. November: 90.
Ruiz, Roland. 2007a. “Asian Pay Bubble: A View from the Ground.” workspan. November: 91.
Straszheim, Donald. 2008. “China:Tangled New Labor Law.” http://www.forbes.com/opinions/2008/01/11/straszheim-china-labor-oped-cx_dhs_0114straszheim.html. (Jan. 13) Viewed: Aug. 5.
United Nations Population Division. 1998. : 1990 World Population Prospects, 1998 Edition.
Wang, Yijang. 2007. International Human Resource Management workshop, Carlson School of Management, Spring.
Watson Wyatt Worldwide. 2005. “Why Employees Stay, China Survey 2005.”
Xin, Guo and Ramamurthy Sankar. 2007. “China and India Demographic Change, HR Challenge.” workspan. November: 96.
Xin, Guo and Ramamurthy Sankar. 2007a. “China and India Demographic Change, HR Challenge.” workspan. November: 97.
REFERENCES
The Successful Implementation of Reward and Recognition Practices at an Insurance Group in Australia
Many companies believe that reward and
recognition (R&R) can be an effective part
of their talent strategy, but when it comes to
implementing a program, they are unsure of how to
approach it. They grapple with questions like:
z What should the program look like?
z How should it work?
z How do you measure its effectiveness?
This paper provides insight to these questions, based
on Insurance Australia Group’s (IAG) experience in imple-
menting and managing an R&R program. IAG’s program
uses desired business practices and organizational
values as a common basis for recognizing performance
in a consistent manner. Its implementation benefited
from proactive change-management practices including
strong executive support and a successful pilot program.
The program proved a success, with IAG experiencing
a 30-percent lift in employee satisfaction with how the
company uses R&R to encourage good performance (from
2003 to 2005).
IAG is a leading general-insurance company, with
operations in Australia, New Zealand and the United
Performance & Recognition z
Jeremy CairdDHL Express
Nuvan AranwelaAccumulate
Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
74 WorldatWork Journal
Kingdom, and has a growing presence in Asia. During the last 10 years, IAG grew
from a predominantly state-based (New South Wales) organization with revenue
of $1.6 billion USD to a multinational organization with revenue of $6.8 billion
USD. This growth occurred primarily through acquisitions.
A NEW R&R PROGRAM
By early 2003, IAG had gone through a period of significant change and rapid
expansion through acquisitions. Consequently, senior management saw the need
to reinforce a consistent and proactive culture to ensure that all employees
would become engaged and deliver on business outcomes for the reconsti-
tuted company. Also, the People & Culture department (usually called “human
resources” in many companies) saw an opportunity to create one consistent and
consolidated program where several disjointed programs previously operated.
Employee satisfaction survey results highlighted to management that employee
recognition needed improvement.
As a result of these drivers, IAG implemented a new companywide program
titled “rewardhelp.” The program’s objectives are listed in Figure 1. The program
needed to be:
1 | Owned by employees. To achieve this, IAG needed peers and not solely managers
to identify behavior requiring recognition.
2 | Based on behavior and values and not just outcomes. IAG’s management recog-
nized that business outcomes would follow if the correct behaviors and values
were reinforced.
3 | Designed to encourage repeated positive behaviors.
4 | Differentiated from regular pay (that is “base salary”). Otherwise, employees
might see rewards from the program as part their regular income.
THE PROGRAM’S WORKINGS
R&R criteria were created to reflect the company’s business objectives. Importantly,
employees could directly influence the issues or programs that served as reward
criteria. This provided a line of sight between (or ability to influence) the desired
behavior and the potential reward, a key element of truly meaningful criteria for
rewards (Lawler 2003), including recognition. Several criteria were based on one
of IAG’s core customer philosophies of helping customers in adverse situations.
This concept was further extended to include recognizing and rewarding employees
providing internal customer service to their colleagues. This approach created
an alignment between IAG’s external customer-service goals and the desired
interemployee behavior.
Other criteria were also developed including leadership, sustainability and
innovation as well as achievement. Criteria design translated into observable
behaviors that employees could be seen to demonstrate and for which they could
be recognized.
75 Third Quarter | 2008
Nominations for R&R
In the rewardhelp program, any employee can nominate any other employee for
R&R. This approach is empowering for employees and ensures that managers
get to hear about, and subsequently recognize, outstanding performance they
otherwise may not have been aware of. The initial nomination process involved
completing a written nomination form and forwarding it to the nominee’s manager
through the internal mail system. The nomination would be assessed and,
if approved, the manager would then action the reward through an online reward
system (outsourced).
Different IAG business units adopted slightly different procedures to reviewing
nominations. However, an overriding objective was to create consistent R&R
activity irrespective of which nomination review procedure was adopted.
The most widely used procedure was for nominations to be reviewed by the nomi-
nee’s manager. Other approaches included a review by a committee of employees
and/or the use of specific guidelines to clarify what behaviors should be rewarded.
Business units using staff committees to review nominations reported a high
degree of program credibility due to the perceived fairness of employee involve-
ment in the process.
Ultimately, IAG found that buy-in to the program was achieved by allowing the
different business units to select their preferred procedure for assessing nomina-
tions. Regardless of the approach adopted, input was gathered from the nominee’s
immediate managers through the review process. The involvement of immediate
managers is critical as they (alongside peers) are most likely to understand the
context of the nomination, and because they usually have budgetary responsi-
bility for R&R.
Recognition — Not Just Rewards
Recognition practices, as distinct from rewarding practices, were heavily empha-
sized from the program’s inception. Management was confident that rewarding
would occur as the process was simple and because managers were given the
budget to do so. Recognizing someone requires some interpersonal effort, but
this does not come easily to all managers. IAG therefore described how managers
should recognize their people.
FIGURE 1 Rewardhelp’s Objectives
IAG’s HR department identified several objectives for the rewardhelp program:
z To improve employee engagement generally and satisfaction with R&R specifically
z To integrate R&R with the company’s remuneration strategy, which includes the objective: “to ensure that high performance is recognized and rewarded”
z To create a consistent R&R framework across the company
z To promote cultural alignment after significant organizational growth through acquisitions.
76 WorldatWork Journal
The primary format for recognition involves the employee’s supervisor or
manager recognizing the employee publicly in some way. The most common
forums for recognizing employees at IAG are team meetings or special recognition
meetings. These avenues for recognition have been identified as two of the three
most commonly used forums for recognizing staff (WorldatWork 2008).
Certificates are the primary tool for recognizing employees. The certificate
presentation acts as a focal point for the recognition meetings. Research shows that
certificates and plaques are the most commonly used recognition awards in organi-
zations (WorldatWork 2008).
IAG management expects managers to recognize their employees for every
nomination that was approved. The company also highlights rewarded people by
publicizing details in internal communications such as department newsletters.
Rewards as well as Recognition
IAG’s program combines a reward with the recognition. The format for rewarding
employees is in points that can subsequently be redeemed for reward items.
The approver, usually the employee’s immediate manager, determines the specific
number of points to allocate (i.e., to reward). Some departments identify specific
guidelines to ensure a consistent approach to R&R decisions, such as the number
of customer compliments received. The points are then automatically and instantly
added to the nominee’s online account. These points, in turn, can be redeemed
for a variety of retail vouchers and/or merchandise of the employee’s choice.
(The redeemed value of these points attract Fringe Benefits Tax (FBT) in Australia
if they exceed a certain value, and in these instances, IAG pays the FBT on behalf
of employees.) The use of reward points has several advantages:
z Points can be accumulated and so encourage repeat desired behavior as employees
strive to increase their total points to redeem a particular reward.
z Points increase in perceived value over time. By contrast, as points accumulate
their perceived value may grow, as each incremental earning is a step closer to
a desired reward.
z Points-based currency offers flexibility in how value is assigned to different
behaviors and in offering the employee choice of the final reward item.
PILOT PHASE (JULY 2003 TO MARCH 2004)
A pilot approach was adopted to ensure the new program would work effec-
tively, before implementing it companywide. For a company whose business is
managing risk through insurance products, such a risk-mitigation strategy was an
understandable step. The pilot phase also offered the opportunity to demonstrate
to those business units who had no prior history of R&R that R&R was a worth-
while activity.
77 Third Quarter | 2008
Post-pilot Review and Program Improvement
The review process of the pilot included questionnaires, interviews, facilitated
group discussions and executive feedback. A decision was reached to imple-
ment rewardhelp across the whole company in Australia. Improvements to the
program included:
z An online nomination process via IAG’s employee intranet was introduced
(the approval process was already online). From a program-management point
of view, this use of technology:
- Was practical because almost all employees had direct access to a computer and
the intranet, and those that didn’t could still make paper-based nominations
- Provided a simple way to enable employees to place nominations, which was
important to drive program adoption
- Made administration, tracking and reporting of nominations much easier
- Allowed flexibility to cater for different nomination approval processes
- Enabled the program to scale up to meet requirements of a broader company-
wide implementation. Without an online system, introducing a manual program
to IAG’s 10,000 employees would have been too big and cumbersome to
do efficiently.
z Decentralization of recognition certificate production. Originally, recognition
certificates were produced centrally and forwarded to the nominee’s manager at
month’s end. Timing and quality problems resulted. The solution was to dissemi-
nate blank certificates to managers, who could then add the rewardees’ names
at their own convenience.
Two other important outcomes from the pilot review relate to the strategic
positioning of the program. First, it was confirmed that the program would be the
company’s primary R&R program, rather than one among several potential R&R
mechanisms. Second, the importance of managers recognizing their employees
was re-emphasized. IAG therefore recommitted to highlighting and reinforcing
the important role that managers play in recognizing their employees.
COMPANYWIDE IMPLEMENTATION (MARCH 2004)
Communication was integral to the implementation and represented a significant
portion of the change-management activity. IAG uses a variety of approaches in
communicating the program:
z Launch announcement. This included an e-mail from the CEO, briefings to managers,
special launch events (such as morning teas) and promotional posters.
z Cascaded briefings. Executives were briefed first to create management buy-in to
the program. They then briefed their reports, who in-turn briefed their reports,
and so on.
z Road shows and in-person briefings. Wherever possible, in-person briefings were
favored over print or e-mail communications.
78 WorldatWork Journal
z Intranet. The employee intranet was a repository of information about the program and,
later on, it became an online portal to make nominations and redeem rewards.
z Managers’ guide. This printable online guide explained how to recognize people
and process nominations. The guide also included frequently asked questions
and relevant tax information.
z Company magazine. Regular updates are included in the company magazine.
z Prelaunch distribution. Blank recognition certificates were provided for the
managers’ use.
z Champions. IAG trained 150 program champions from around the business to
promote and explain the program to their departments and teams.
Business-Unit Recognition
Business-unit R&R events were introduced where the “best of the best” from within
that business unit are recognized annually by the business-unit executive.
IAG Excellence Awards
Another new component was the introduction of the IAG Excellence Awards.
The best of the business-unit winners were nominated for the IAG Excellence
Awards, which are presented by the CEO at an annual event.
WAS REWARDHELP A SUCCESSFUL R&R PROGRAM FOR IAG?
Rewardhelp has been a success for IAG. During the pilot and the company-
wide launch phases, the program’s success was measured closely to ensure
the company was receiving adequate return on its investment in the program.
IAG’s primary measurement tools are measuring R&R activity and the use of
employee-satisfaction surveys. Measuring employee satisfaction is the most common
method used by companies when measuring the success of their recognition
programs (WorldatWork 2008).
Employee Satisfaction with Recognition: Companywide
Overall, from the pilot phase and through the subsequent companywide implemen-
tation (to the end of 2005), there was a 30-percent lift in employee perception that
IAG makes adequate use of R&R to encourage good performance relative to pre-pilot
(See Figure 2). Further, there was a 10-percent lift in the individuals’ perception that
they receive adequate recognition for their contributions (See Figure 3).
An annual employee survey is the primary measurement of the program’s
business impact. The survey contains two statements in relation to R&R and requests
employee responses. The statements are:
1 | “In my area, we make adequate use of recognition and rewards (other than
money) to encourage good performance.”
2 | “I receive adequate recognition (other than money) for my contributions/
accomplishments.”
79 Third Quarter | 2008
At the business-unit level, business units showed significant increases in the
perception that R&R was adequately used to encourage good performance,
ranging from approximately 20 percent to as much as 80 percent (Figure 2).
Business units showed increases (from 2004) in the view that, individually,
employees felt adequately recognized; here, increases ranged from 5 percent to
30 percent (Figure 3). (In 2004, Unit No. 3’s increase is 0%. In 2005, Unit No.5’s
increase is 0%.)
FIGURE 3 Percentage Change in Positive Responses to the Statement: “I Receive Adequate Recognition (Other Than Money) for My Contributions/ Accomplishments,” Relative to the 2003 Response.
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
% c
hang
e in
“A
gre
e” a
nd
“Str
ong
ly A
gre
e” r
esp
ons
es
Pilot DivisionsDivision
-15
-10
-5
0
5
10
15
20
25
30
35
Overall 1 2 3 4 5 6 P1 P2
2004 2005
FIGURE 2 Percentage Change in Positive Responses to the Statement: “In My Area, We Make Adequate Use of Recognition and Rewards (Other than Money) to Encourage Good Performance,” Relative to the 2003 Response
100%
80%
60%
40%
20%
0%
-20%
% c
hang
e in
“A
gre
e” a
nd
“Str
ong
ly A
gre
e” r
esp
ons
es
-10
0
10
20
30
40
50
60
70
80
Overall 1 2 3 4 5 6 P1 P2
Pilot Divisions
2004 2005
Division
80 WorldatWork Journal
Pilot Versus Nonpilot Business Units
A significant difference existed in staff perceptions between employees in business
units that were early adopters of the program (such as the pilot business units)
compared to employees in business units that adopted the program later during
the companywide implementation.
One year after the program was introduced to the pilot business units, employee
perceptions that they personally received adequate recognition relative to nonpilot
business units increased (Figure 3). The pilot business units showed increases
between 7 percent and 13 percent; while all but one nonpilot business unit showed
either no change or a decrease in perception of being personally recognized
during the pilot phase.
However, all but one business unit showed an increase in the perception that
IAG used R&R adequately to encourage performance in 2004, and this translated
to a companywide increase in positive responses to this survey question (Figure
2). For some nonpilot business units, the increase was higher than that for the pilot
business units. This unexpected outcome may be a result of the combined impact
of the phrasing of the question and timing of the survey in 2004. The question
focuses on perceptions that R&R is adequately used within business units —
a perception which may have been positively impacted as the survey was conducted
in the month following the companywide implementation of rewardhelp — a time
of extensive, companywide communication. Indeed, employee perceptions in the
nonpilot business units may have been more significantly affected, as the whole
R&R concept was new to them.
By March 2005, the program had been in place for almost two years in the pilot
group and one year for all other business units. The survey recorded increases in
positive responses to both R&R-related questions across all but one business unit
(Figure 2 and Figure 3).
The survey results indicate that IAG’s rewardhelp program had a significant, posi-
tive effect on the perception of R&R in the company. This influence was evident
from increased numbers of employees believing their business unit adequately
applied R&R to encourage performance and in individuals themselves feeling
recognized for their contributions.
Employee Engagement
The improved perception of R&R at IAG has broad impacts. For example, in March
2004, 77 percent of employees satisfied with the individual R&R they received
were also identified as engaged, as measured by their expressed desire to stay
with the company, to promote it to friends and to apply increased exertion to
achieve organizational goals. However, only 32 percent of employees not satisfied
with R&R were also engaged. This apparent relationship between an employee’s
satisfaction with R&R and his/her engagement is significant for IAG, as improving
employee engagement was an important management objective. The program’s
81 Third Quarter | 2008
direct impact on satisfaction with R&R, and its apparent relationship to employee
engagement, demonstrates it is worthwhile for IAG to ensure employees are, and
feel, adequately recognized.
R&R ACTIVITY DURING THE PILOT AND LAUNCH PHASES
(JULY 2003 TO THE END OF 2004)
Program performance is also monitored by measuring nomination activity,
including nominations made, the percentage of nominations approved, and
points issued per approved nomination. This activity can be measured as the
technology driving nomination and reward activity captures, stores and reports
every nomination and reward.
Consistent with the effect of
rewardhelp in improving employee
perceptions of R&R, the average
nominations made per annum per
employee increased in the pilot and
nonpilot groups (Figure 4), as did
the number of reward points issued
through the program on a similar, per
annum per employee basis (Figure
5). The relatively speedy adoption of
the program within the pilot busi-
ness units may further reflect strong
executive support for the program in
those specific areas.
The percentage of nominations that
were approved declined year over
year until the end of 2005 (Figure 6
on page 82). During 2006-2007, the
percentage of nominations approved
increased again.
Pilot Versus Nonpilot Business Units
As with employee satisfaction with
R&R, utilization has consistently
been much higher in terms of nomi-
nations made and points issued
per employee for the pilot group.
The difference in usage levels seems
too large to be solely attributable
to a lag in uptake between the pilot
and nonpi lot business un it s .
FIGURE 4 Number of Nominations Made (Per Employee Per Annum)
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Num
ber
of
nom
inat
ions
mad
e
(per
em
plo
yee
per
ann
um)
Period0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jul 03 – Feb 04
March 04 – Feb 05
March 05 – Nov 05
Pilot Nonpilot Overall
FIGURE 5 Points Issued Per Employee (Per Annum)
140
120
100
80
60
40
20
0
Po
ints
issu
ed p
er e
mp
loye
e (p
er a
nnum
)
Period
0
20
40
60
80
100
120
Jul 03 – Feb 04
March 04 – Feb 05
March 05 – Nov 05
Pilot Nonpilot Overall
82 WorldatWork Journal
Contributors to the difference may be
the stronger pre-existing culture and
history of R&R among pilot business
units in comparison to other groups.
Moreover, the interaction between
activity and survey responses was
somewhat unexpected. The pilot
business units typically saw larger
increases than the other business
units in positive responses to indi-
viduals feeling adequately recognized
for their own contributions, and
this is consistent with higher levels
of activity within the pilot group.
In contrast, the nonpilot business
units saw more dramatic increases
in positive responses to the percep-
tion that recognition was adequately
used by their business units to
encourage performance. This may
be a product of the respective busi-
ness units’ history of R&R. Nonpilot
business units were experiencing
new levels of structured recognition,
which produced a disproportionate
impact on the perception of recogni-
tion, relative to the level of activity.
It may also be because prior to the
program’s implementation, the pilot
business units had higher levels of
satisfaction with R&R than all but one
other business unit and were there-
fore starting from a higher base.
Despite these differences in the program’s use and the historical practices of
R&R, there was a remarkable level of consistency across business units in how
individual nominations were evaluated, in terms of the percentage of nomi-
nations approved (Figure 6) and the points issued per approved nomination
(Figure 7). Consistency in how nominations are evaluated is often cited as a
concern among organizations seeking to implement an R&R strategy and program.
IAG’s experience suggests that such concerns can be managed through effective
communications and guidelines around how nominations are to be evaluated.
FIGURE 6 Percentage of Nominations Approved
100%
90%
80%
70%
60%
Per
cent
age
of
no
min
atio
ns a
pp
rove
d
Period
0
20
40
60
80
100
Jul 03 – Feb 04
March 04 – Feb 05
March 05 – Nov 05
Pilot Nonprofit Overall
FIGURE 7 Points Issued Per Approved Nomination (Per Annum)
60
50
40
30
20
10
0
Po
ints
issu
ed p
er e
mp
loye
e (p
er a
nnum
)
Period 0
10
20
30
40
50
60
Jul 03 – Feb 04
March 04 – Feb 05
March 05 – Nov 05
Pilot Nonprofit Overall
83 Third Quarter | 2008
R&R Activity After the Pilot and
Launch Phases (2006 and 2007)
Since the end of the pilot and launch
phases, the average nominations
made per annum per employee
increased to approximately four per
employee per annum. Total points
issued per employee per annum
also increased, to more than 150.
And, the percentage of nomina-
tions approved has risen to above
90 percent. The number of points
granted per approved nomination
decreased about 10 percent since
the pilot and launch phases. R&R
activity during 2006-2007 indicates
more R&R occurs and more overall
rewards per person rises, but that
the individual value of the rewards is lower. This evolution of R&R activity demon-
strates that R&R is firmly established as part of IAG’s people practices, and that
rewardhelp is being used for frequent, low-value R&R.
SUCCESS FACTORS AND LEARNINGS
In IAG’s experience, several factors made a significant contribution to the program’s
success. Collectively, they constituted effective change management for IAG:
z Executive support: IAG’s senior-management team fully supported the program’s
introduction.
z R&R budgets: IAG includes dedicated R&R budgets in all employee cost centers
to avoid managers juggling the conflicting goals of trying to reward employees
and reduce discretionary expenditure.
z Communication: As previously detailed, IAG focused strongly on communicating
the program’s introduction.
z Integration with human-resources strategy: IAG places rewardhelp in the context
of other aspects of its human-resources strategy and people-management systems.
This accelerated the program’s integration into IAG’s culture.
z Focus on recognition: A potential pitfall in implementing an R&R program is
to focus on rewards rather than recognition. Delivering recognition can be
harder to do consistently, as it requires individual and organization commitment.
At IAG, emphasis is therefore placed on the interpersonal aspect, that is, praising
employees in front of their peers.
RESOURCES PLUSFor more information related to this paper:
www.worldatwork.org Type in any or all of the following search keywords on the search line:
z “Recognition Programs”
z Australia.
www.worldatwork.org/bookstore
z Global Rewards: A Collection of Articles from WorldatWork
z Recognition at Work: Maximizing the Impact of Recognition.
www.worldatwork.org/education
z GR1: Total Rewards Management
z GR7: International Remuneration — An Overview of Global Rewards.
84 WorldatWork Journal
z Conducting a pilot program: The use of a pilot program proved most valuable to
the subsequent companywide implementation.
There were other important learnings. First, IAG used multiple measures, such as
employee surveys and program activity, to determine if the program was succeeding.
Second, IAG endorsed flexibility in implementation. For example, it didn’t require
the different business units within IAG to adopt a one-size-fits-all approach to
reviewing nominations. Third, IAG maintains a flexible approach to the ongoing
program structure. It acknowledges that the program needs to evolve and change
to meet changing needs.
CONCLUSION
Rewardhelp is a successful component of IAG’s overall human-resources strategy
from several perspectives. In terms of the initial objectives set for the program,
it demonstrably increased employee satisfaction with R&R; and, significantly, avail-
able data suggests that this has a positive relationship to employee engagement.
It also integrates with other components of IAG’s rewards strategy and results in
high performance being recognized and rewarded. In addition, it provides a consis-
tent framework for recognition and, based on utilization data, one that is actively
used by employees day to day. Finally, through its ongoing use, the program serves
as a valuable means of communicating and promoting desired business practices
and creating cultural alignment across the company. z
Jeremy Caird ( [email protected]) is vice presi-dent, rewards & remuneration, Asia Pacific, for DHL Express based in Singapore. From 2002 to 2005 he worked in IAG’s reward & recognition team in Sydney, Australia, where he was responsible for implementing the rewardhelp program detailed in this paper. He has held HR roles in a broad range of industries in Australia, New Zealand and Singapore including transport, fast moving consumer goods (FMCG), professional services, aviation and financial services. He holds a bachelor of arts and a master of commerce degree, both from the University of Canterbury in Christchurch, New Zealand.
Nuvan Aranwela , Ph.D., (nuvan.aranwela@ accumulate.com.au) is chief strategy and technology officer for Accumulate, a specialist recognition, incentive and loyalty solutions provider based in Melbourne, Australia. During the past five years, he has been intimately involved in designing and deliv-ering such solutions for more than 50 leading global and Australia companies, including IAG. His previous experience is in management consulting, and he holds a Ph.D. in science from Monash University in Melbourne, Australia.
AUTHORS
Lawler, Edward E. 2003. Treat People Right! San Francisco, Calif.: Jossey-Bass.
WorldatWork. 2008. “Trends in Employee Recognition.”
REFERENCES
2009 Salary Budget Increases Expected to be 3.9 PercentResults from the “35th Annual WorldatWork Salary Budget Survey” show pay budgets growing
steadily from 2008 to 2009 in the U.S. and Canada. The actual increase in salary budgets was 3.9
percent in 2008 and is projected to rise again by another 3.9 percent in 2009 across all employee
categories, regions and industries, according to the survey.
Nine out of 10 employees (91 percent) in both the U.S. and Canada can expect to receive
base-pay increases this year. High performers can expect raises above 5 percent, while below-
average performers can expect 2 percent or less. The survey found that among major U.S.
metropolitan areas, organizations in Washington, D.C., report the highest 2008 salary-budget
increases for all employee categories and industries: 4.0 percent. (www.worldatwork.org)
Workers Altering Their Commutes Due to Rising Gas PricesFeeling pressure at the pump, many workers are changing their commuting habits to ease the
financial burden of rising gas prices, a survey shows. Forty-four percent of professionals inter-
viewed said higher gas prices have affected their commutes, up from 34 percent two years
ago when a similar survey was conducted. Among those who said they have altered their work
arrangements, the most common changes they reported making include increased carpooling
or ridesharing (46 percent), driving a more fuel-efficient vehicle (33 percent) and telecommuting
more frequently (33 percent). Three in 10 said they are looking for a new job closer to home.
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Compensation Costs Higher for State Local Employers Than for Private-Sector Employers Total compensation costs for workers were 51.4 percent higher among state and local government
employers than among private-sector employers in September 2007, a reflection of the different
composition of the two workforces. Total compensation costs consist of two major categories:
wages and salaries, and employee benefits. For both of these categories, state and local govern-
ment employers’ costs were higher than those of private-sector employers: 42.6 percent higher
for wages and salaries, and 72.8 percent higher for employee benefits, according to the new
study said. (www.ebri.org)
Executive Compensation Survey Finds CEOs, Pay Tied to PerformanceThe 2007 Top Executive Compensation Report reveals that CEOs of the largest companies have a
substantial amount of their compensation tied to company performance. According to the study,
the utilities industry and the food and tobacco industry top the list of median CEO compensation.
The highest median CEO total compensation was $3.9 million for the utilities industry and $3.8
million for the food and tobacco industry. (www.Salary.com)
Younger Workers Want Advancement Opportunities, BenefitsGenerations X and Y are looking for advancement opportunities, performance-based bonuses
and a great benefits package when looking for work, but employers are out of touch with what
the younger generations want, reports a survey. The David Aplin Recruiting survey finds that the
most important incentives according to Gen X and Y employees are: opportunities to climb the
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Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
86 WorldatWork Journal
U.S. Executives Rank Lost Productivity as No. 1 Issue Impacted by Employee TurnoverA survey shows that lost productivity, followed by diminished service quality, decreased employee
morale, lost organizational knowledge and higher recruiting costs, is viewed as the biggest
problem with employee turnover. The TalentKeepers’ “2008 Employee Turnover Trends Report”
gathered detailed turnover data from more than 600 major U.S.-based organizations representing
every major industry. The report shows an increase in several training, development and employee
engagement-focused retention strategies from last year. The number of companies conducting
employee-satisfaction surveys jumped 16 percent from last year, while companies offering training
and development increased 5 percent, and onboarding and orientation programs increased by 3
percent. (www.talentkeepers-services.com/talentkeepers/index.asp)
Employees Say Teamwork, Communication Declining in Workplace A survey of employee attitudes found that workers see teamwork declining throughout their
organizations, as well as between departments, and that communications between departments
also has fallen off since last year. Already facing the challenges of a flagging economy, organiza-
tions must also deal with a workforce that sees declines in several key areas from 2007 to 2008.
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U.S. CEO compensation trends, based upon analysis of the latest proxy filings of 350 companies
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Employers Enhancing DC Plans to Compensate for Retirement Plan Changes Many companies that shift from traditional defined benefit (DB) pension plans to defined contribu-
tion (DC) plans, such as 401(k)s, are enhancing contributions to their DC plans, according to a
survey. However, the overall retirement value delivered by employers that provide only DC plans
is generally less than what is provided by companies with a combined DB and DC approach.
Watson Wyatt Worldwide conducted the survey, and it found that of 300 large employers, 40
percent have replaced their DB plan with a DC plan as their main retirement vehicle for new
hires in the past 10 years. More than three-quarters of these companies made enhancements to
their DC plan after freezing or closing their DB plan, with the majority (52 percent) introducing
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How Much is Too Much Study Highlights American Gas Addiction While few are ready to go “cold turkey,” 38 percent of a survey’s respondents said that they
will pay anything for gas. The survey also said that Americans are clearly focused on reducing
their daily dosage (78 percent have changed their lifestyles to reduce their dependence on gas).
The study examines Americans’ commuting habits and the steps employees are taking to alleviate
the effects of continually rising gas prices. Telework Exchange, a public-private partnership
focused on promoting and expanding telework options, announced the results, which are in
“How Much is Too Much; America’s Addiction to Gasoline and Its Impact on the Workforce.”
(www.teleworkexchange.com)
U.S. Domestic Short-Term Assignments on the Rise Employers in the United States are increasingly looking to short-term and rotational assignments
to accomplish their business objectives, according to a survey. The Worldwide ERC, the associa-
tion for workforce mobility, and Cartus, a provider of global relocation and workforce development
solutions, released the “2008 Pulse Survey, New Trends in Employee Mobility: Short-term and
Rotational Assignments within the U.S. on the Rise.” It captures responses from 208 U.S.-based
HR practitioners in more than 15 industries, includes information on key forces driving the trend,
and identifies challenges for organizations and their employees.
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Survey Suggests U.S. Companies Not Effectively Using Workplace Flexibility ProgramsA rapidly shrinking talent pool, coupled with increased work-life pressures and a more diverse,
global and independent workforce, have prompted an increasing number of companies to offer
flexible work arrangements as another way to attract, retain and engage talent, according a
survey. But while companies believe that workplace flexibility is a critical retention and recruiting
tool, most do not have the structure or support in place to maximize the value that these programs
can provide, according to Hewitt Associates. (www.hewitt.com)
CEOs at Best-Performing Companies Receive Long-Term Incentive Payouts Substantially Above Target Chief executive officers whose companies financially outperformed their peers during a three-
year period received long-term incentive award payouts that were more than 50 percent above
their target, according to an analysis. Watson Wyatt Worldwide’s analysis revealed that CEOs
at high-performing companies — those with total returns to shareholders (TRS) of more than
the median from 2004 to 2006 — were rewarded with long-term incentive payouts that were 156
percent of their targets. Conversely, CEOs at low-performing companies — those with a TRS
below the median — received median payouts of 71 percent of target. Overall, CEOs earned
median payouts slightly above target, at 114 percent. (www.watsonwyatt.com)
U.S. Business Execs Struggling with Pace of Change Nearly 50 percent of business executives say that the pace of change is becoming hard or
impossible to predict, according to a survey. And it appears many companies will suffer as
change inevitably happens: almost 20 percent characterize themselves as poor or very poor
at handling such initiatives. In Corporate America, major change is almost impossible to avoid.
Every responding company has undertaken at least one major change initiative in the past year,
reports i4cp. In fact, 26 percent of American companies report that they have undertaken more
than five major changes in the last year. (www.i4cp.com)
Facts & FiguresStatistics from this issue of WorldatWork Journal
October 2006 | In October 2006, a government
mandate was issued requiring all HR direc-
tors in a major Middle Eastern country to be
nationals (PAGE 51).
12.4 million | The number of Americans whose
employer allowed them to work from home at
least one day a month grew from 9.9 million to
12.4 million between 2005 and 2006 (PAGE 35).
From 29% to 42% | Between 1985 and 2007, the
female labor-force participation rates rose from
29 to 42 percent at ages 62 to 64 (PAGE 33).
7.2% | While studies show that global sala-
ries increased by an average of 5.9 percent in
2007, China’s gross salary increase rate is 7.2
percent (PAGE 67).
30% | The projection is, by the year 2025, only
30 percent of the population in China will be in
the workforce (PAGE 67).
73% | A China Youth Daily-Sina.com survey
found that 73 percent of the 74,379 respon-
dents said they never enjoyed any paid vacation
(PAGE 69).
From 46% to 52% | Between 1985 and 2007,
the share of men in the labor force increased
from 46 percent to 52 percent at ages 62
to 64 (PAGE 32).
10% | There was a 10-percent lift in the indi-
viduals’ perception that they receive adequate
recognition for their contributions under a
program at the Insurance Australia Group
(PAGE 78).
Four | Since the end of the pilot and launch
phases of a reward and recognition program
at the Insurance Australia Group, the average
nominations made per annum per employee
increased to approximately four per employee
per annum (PAGE 83).
3.9%
Results from the “35th Annual WorldatWork
Salary Budget Survey” show pay budgets
growing steadily in the United States and
Canada. The actual increase in salary budgets
is projected to rise by another 3.9 percent in 2009
across all employee categories, regions and
industries, according to the survey (PAGE 85).
$3.9 million
The highest median CEO total compensation
is $3.9 million for the utilities industry (PAGE 85).
Most Important
The most important incentives according to
Generation X and Y employees are opportunities
to climb up the corporate ladder, performance-
based bonuses and salary increases and an
excellent benefits package (PAGE 85).
Supply/Demand Balance
The supply/demand balance for specific skills,
the role of third parties such as unions, the cost of
living and the nature of organizations competing
in the market all influence the workings of the
labor markets (PAGE 45).
44%Forty-four percent of professionals
interviewed said higher gas prices
have affected their commutes (PAGE 85).
51.4%Total compensation costs
for workers were 51.4 per-
cent higher among state and local government
employers than among private-sector employers
in September 2007 (PAGE 85).
35%Only 35 percent of employees
understand how their organiza-
tions’ reward programs work (PAGE 6).
9%In a recent survey, 9 percent of
the respondents reported having a
separate budget for reward communications (PAGE 9).
81%Most respondents (81 percent)
reported that their benefits com-
munications were “effective” or “very effective”
(PAGE 8).
Third Quarter 2008
877/951-9191www.worldatwork.org
Contents © WorldatWork 2008. WorldatWork members and educational institutions may print 1 to 24 copies of any WorldatWork-published article for personal, non-commercial, one-time use only. To order 25 or more print presentation-ready copies, or an electronic copy for distribution to colleagues, clients or customers, contact Gail Hallman, [email protected] at Sheridan Press, 717-632-3535, ext. 8175. To order full copies of WorldatWork publications, contact WorldatWork Customer Relationship Services, [email protected], 877-951-9191.
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