The SZA Pay & Rewards Bulletin, June 2004

Pay & Rewards Strategy


WINNING YOUR ORGANIZATION’S BATTLE FOR SUPERKEEPERS

Patricia K. Zingheim and Jay R. Schuster


What will total rewards look like in the next decade? Changes are required to make total rewards a powerful tool for business leaders. Pay and rewards solutions should be directed at the top 10% - 20% of any work force—the critically skilled people who are uniquely able to consistently translate their skills and competencies into measurable outcomes. The contemporary total rewards program must ensure that organizations do this as a consistent talent strategy—not just when the company needs to weed out poor performers.

Essential employees are superkeepers, who comprise the talent that makes a business successful. Although many companies are replacing high-paid employees with low-paid employees whenever possible, they need a strategy that rewards generously for talent who adds real business value. A best-of-the-best talent reward solution puts substance into the business case for paying for performance.

The challenge is the gap that exists between what business leaders know is the best thing to do and what they actually do, as is the case with the realities of pay and rewards. While leaders know their organization is most likely to be successful if it rewards superkeepers, they don’t completely connect good intentions with implementation.

How are superkeepers different from scarce talent? Superkeepers are more important than scarce talent. A scarce-talent environment exists when the demand for people with skills exceeds the supply. Market scarcity of high market-value skills may change over time. But while the market scarcity exists, organizations must pay a premium for people who are scarce talent. Although some superkeepers may not even have skills that are scarce in the general marketplace, they have capabilities and a performance record that are critical to the organization's mission.

What Is a Superkeeper Strategy?

A superkeeper strategy is a broad talent strategy that defines the roles employees will play in making organizations a success. It gives priority to identifying and rewarding employees for performance by revitalizing many human resources tools, including total rewards, performance management, training and development, succession planning, selection and placement, coaching and counseling. In the superkeeper context, they become the tools that credibly identify and reward key contributors.

State of Reward Strategies

Organizations need to review how closely their own rewards solution aligns with the company’s business strategy. Most companies execute talent strategies and corresponding reward strategies that are not equipped to deal with the real-world skill and performance challenges.

Spread Cream Cheese

The "spread cream cheese" analogy refers to a senior manager who said her company’s rewards strategy was to spread them "as evenly as cream cheese on a bagel." The company shared pay and rewards dollars without consistently determining which employees add the best value. The manager's frustration was rooted in the absence of a way to identify, reward, recognize and retain the most critical employees when the company operated on a reduced budget and was forced to reduce its work force.

This company’s rewards strategy worked well in good times, but was inflexible when business fortunes ebbed and flowed. Being named to a "Best Place to Work" list doesn’t require a company to show it has a rewards solution agile enough to bend with periodic downhill business gyrations. An entitlement-oriented rewards strategy fails to prepare the work force for hard times. And the deal breaker is the fact that people with top skills and performance receive little more than poorer performers.

Queen of Hearts

In Lewis Carroll’s Alice in Wonderland, the Queen of Hearts is notorious for ordering the beheading of subjects who offend her. Some formerly exalted companies found themselves unprepared to manage talent based on how people add value. Faced with the need to reward performance and reduce headcount, they forced a "shotgun wedding" with performance management. CEOs didn't wait for the tools to be in place that the company needed to really do performance management and pay for performance. Rather, the tool of the moment was commonly some sort of performance ranking by managers who were unprepared to make objective and realistic talent judgments. This often resulted in dire consequences to the company's reputation and its talent pool.

Because more than a few companies lack viable talent support systems such as coaching, rater training and valid performance tools, most attempts to identify critical talent were haphazard at best. This resulted in poor preparation in the arena of performance standards and goal setting and incomplete training of managers to judge skill and performance or how to handle pay and rewards. In addition, there were major lapses in communications to the work force about skill and competency expectations and performance standards detailing how employees are expected to turn what they know into outcomes.

The Queen of Hearts strategy does not create a win-win culture. Often, it has a highly negative impact on the company talent pool and sometimes brands the company as one that treats people harshly. Such solutions fail to create a superkeeper talent strategy. In some instances, the result is accusations of discrimination. In some other instances, organizations must reinstate employees who were terminated through the application of tools that unfairly identified and applied the talent criteria.

Lessons about Superkeepers

Talent strategy experiences teach companies much about the journey to total rewards. It's clear that a positive work environment, compelling future, individual growth and total pay are the right building blocks for total rewards. Organizations are branding and customizing their total rewards packages to communicate what it's like to work there. Total rewards can make companies attractive. The lesson learned from the "spread the cream cheese" and "Queen of Hearts" discussions is that companies need to get maximum value from investments in total rewards. This has the best chance of occurring when rewards focus on superkeepers.

Just providing liberal pay, benefits and evenly distributing rewards to everyone has no track record of making a company an "employer of preference" for top-performing employees. Instead, a company must pay for essential skills and competencies and the ability to deploy these to achieve goals. It's necessary to have valid tools and systems in place to credibly judge talent. Too often, statements of talent strategic intent are so general that nobody could possibly dispute them.

Selective Talent Strategies

Making a company a "Best Place to Work" means placing a priority on skill and performance. Exhibit 1 compares and contrasts rewards strategies. 

Exhibit 1
Comparing Total Rewards Strategies

Most
Rewards Strategies

Superkeeper
Rewards Strategies

Element of only human resource strategy

Element of business strategy

Rewards driven by equity and fairness

Rewards focus on business needs first

Constant from year to year

Adapt as talent needs evolve

Rewards attractive to all

Rewards most attractive to superkeepers

Uniform competitive practice for all skills and jobs

Strongly competitive for superkeepers

Questionable performance link

Close performance tie-in

Superkeeper talent strategies are business strategies. Many talent strategies are not selective. All organizations hope to attract employees, but their talent strategies often do not target superkeepers. Companies should build a talent strategy around this element of the work force by taking the following steps:

If a company can’t develop valid criteria for mission-essential talent and define what performance is in credible terms, it will be impossible to implement a superkeeper talent strategy. A process for identifying the key talent is shown in Exhibit 2 below. It provides a possible foundation for problem-solving talent strategies. Organizations have the option of implementing the same rewards programs throughout the company or customizing them to match differences that may exist across organizational business units. These business units may have substantially different superkeeper needs in terms of defining mission-essential skill and competency as well as how performance will be measured. (See Exhibit 3.)

 

Exhibit 2:
Identifying Superkeepers and Responding to Their Needs

  1. What skills/competencies are absolutely needed?

  2. Which people have these skills/competencies?

  3. Which people can translate skills/competencies into business outcomes?

  4. Where are more people who fit this mold now?

  5. What rewards do they want and in what balance—individual growth, compelling future, positive workplace, total pay?

  6. What reward changes need to be made?

  7. Is your company ready or willing to make the changes?

...If you don’t know, finding out is first step  

 

Exhibit 3:
Allow for Customization Within the Organization

 

Total Rewards Tools

Talent tools are recruitment, selection and placement solutions that support the superkeeper definitions developed to match the business plan. They also include performance and skill/competency assessment tools that really work. These tools are geared to implementing clear talent objectives, criteria for measuring and encouraging them, and supporting systems that enable the organization to staff themselves consistent with their talent goals.

The company must develop training and talent plans that are capable of keeping talent current. This means constantly updating the business needs for skills and competencies. The most important need is the development of managers who coach and develop talent. All of these more effective systems are intended elements of most contemporary human resource management strategies. However, the premium being placed on employees that are essential to the business in superkeeper talent strategies requires that these tools be honed to their finest edge of effectiveness.

The Proof’s in the Pudding

Three case studies help prove the point: Talent strategies are driven by business needs. Each scenario depicts a problem that resulted in a customized rewards solution. All had incorporated agility and flexibility so they could change as needed. None of the solutions involved liberal pay and benefits for the entire work force. They also avoided poorly engineered attempts to identify key talent that resulted in arbitrary and unfair decisions that did more harm than good.

Consumer Products Company

This company was performing acceptably, but the talent strategy called for better work force alignment with goals and improved emphasis on the people who made a real performance difference. Management believed that if employees had some skin in the game, it would help. The solution was to evaluate how well employees' base pay matched employees' value to the organization. Criteria building preceded this process as did communications about what constitutes a superkeeper in this organization. The rewards goal was to strengthen the relationship between superkeeper status and pay standing. Reviewing pay in relation to value prompted the company to undertake a realignment effort.

Superkeeper identification involved fitting people into one of three categories—"must keep" or primary superkeepers, not want to lose (but not "must keep") or secondary superkeepers, and others who are important to keep the business running effectively but not superkeepers. Sample criteria included criticality to success of business over the next few years, unique skills or experiences, the company’s ability to replace the individual if necessary, and having a critical core role or core competencies required by the business.

Base pay management changed to grant pay increases based on value added to the business. The determination was based on a dollar amount and not percentage increase. The process was to review total compensation (base pay and short- and long-term variable pay) to ensure all pay dollars are effectively spent. Managers were trained and accountable for budget and retaining people with high superkeeper status.

Lesson: Manager accountability for superkeeper retention drives pay differentiation. Managers were trained to pay based on overall value to the organization. It required talking honestly with employees about superkeeper status and what they need to do to increase their value to the business.

High-Technology Company

The high-tech industry was in the doldrums when this case developed. The company had limited base pay increase budget and underwater stock options. It started with a careful analysis to identify core competencies of the business that includes those that help differentiate the business from its competitors. This yardstick was used to train managers to coach and select superkeepers who are both critical to the business and strong performers. In this instance, they were almost exclusively technology people. The focus was on nonmanagement employees with the talent the business determined was mission-critical. Two judgments were subsequently made about the risk of losing superkeepers:

The company determined early that base pay increase budgets were too small to make a difference. They had a performance management process that was capable of applying the newly developed measures of criticality and performance. The focus was on cash incentive opportunity that varied based on criticality of superkeeper status rather than level in the organization as it was prior to this effort. The combination of opportunity plus basing the award on achieving individual goals rewarded not only superkeeper talent skills but also the ability to translate them into performance results. The performance management system made this real for the employees.

Lesson: Flexibility counts. The company moved from base pay to incentives, based on skill differences and the ability to perform individually. The outcome of superkeeper identification driven by pay needs gave momentum to succession planning and long-term work force development. It was part of a migration to a total rewards solution focused on value to the business.

Telecommunications Company

This company was in serious distress. Survival was the goal with a key work force of essential talent needed for turning the business around. The search for top performers in key roles with essential talent identified key finance and customer relationship skills as superkeeper talent. In this case, it amounted to a superkeeper cadre of less than 10 percent of the total work force. The company had a highly selective talent strategy focused specifically on getting the company across a difficult economic bridge with the key talent it needs to remain a company.

The solution was a retention bonus for the 10 percent of the work force needed. It was designed in installment payments with the largest payment at the end of company restructuring. Keeping the talent pool intact was the goal. This solution replaced the loss of regular incentives and stock options. In addition, the company added an enhanced severance program as protection if these essential people are let go in the future. Terminating old programs and replacing them with a solution focused directly on the situation were key in this case.

Lesson: Old programs just won’t work under a company survival mode. These programs were developed during different times and under different sets of assumptions about the company's future. This company needed a highly proactive program to focus critical people on the business. The burning platform does make the superkeeper strategy much easier to implement than would be possible when times are good and pay and incentives are plentiful.

Developing Superkeeper Total Rewards

These cases suggest that companies can consider a continuum of rewards approaches for superkeepers. Exhibit 4 lists the possible solutions. Some of these alternatives are fairly transparent so we will emphasize those that need some discussion.

Exhibit 4
Continuum of Approaches for Superkeepers

At Level 1, the company creates greater differentiation in base pay adjustments based on value-added on an individual basis. It needs support tools for the performance process and compares individual value to actual pay and implements a strategy to correct the difference. At Level 2, a portion of any base pay increase budget goes additionally to superkeepers only. A 1-percent allocation means 5 percent additional to 20 percent superkeepers or it means 10 percent if the company has 10 percent superkeepers. In Level 3, superkeepers are provided an additional cash variable pay opportunity. This can be linked to or separate from the ongoing performance management process. Many possible incentive choices are possible such as an additional annual incentive opportunity, special recognition awards or project incentives. The performance periods can be flexible to respond to the specific business situation.

For Level 4, additional stock vehicles can be offered to superkeepers. The perceived value of options varies from company to company. Restricted stock has retention value and may be an alternative to options. Performance shares are worth evaluation because they have both retention and performance value. In Level 5, we have a total compensation solution that communicates to each individual on a single page what they have: base, short- and long-term variable pay, additional compensation, etc. Job changes to gain skills and competencies and recognition of significant achievements can be part of the formula. In Level 6, the total reward solution involves more than total pay and provides the most customized superkeeper solution of all.

Practical for Any Company?

Companies need to be ready for superkeeper rewards solutions. The time is right for considering changes to how people are rewarded. Organizations need a strategy that outlines the solutions suggested in this article, such as the following:

If a company wants to proceed, what steps should it take to get from its present rewards strategy to where the business requires rewards to be? The initial step is to diagnose the existing situation. What is current state compared to what it needs to be? Ask these questions:

Armed with the answers, the next step is to strategize how to do this, develop and implement the programs, then communicate and train. Training is imperative because managers are the primary communicators and need tools to do this effectively. Managers actively review superkeepers quarterly and are responsible for results so they also must be accountable for people and rewards to ensure value added. Finally, it is critical to continually evaluate the program for improvement as the company situation and plans change.

The Future?

Predicting the future is impossible. But company leaders urgently want a powerful business case for rewards. They want to see where their dollars are spent. Leaders realize that some talent is more critical to the company than others. The future should emphasize more business alignment. The ability to get and keep the best people with critical skills is a continuing opportunity for all companies. Wise companies will move to become increasingly willing to implement rewards with a bias to critical talent. This offers a great opportunity during challenging economic times to prepare for the upswing. What does the future mean to a company? It is a great chance to differentiate one company from others. The solution is becoming more evident and only the next few years will tell us who is best positioned for the next decade.

References

Davis, John and Cyndi Harris. (2000) "Retaining Your Hot Skills Employees – Use Dollars AND Sense." WorldatWork Journal. First Quarter 2000. 9/1. 47-56.

Gross, Steven E. and Haig R. Nalbantian. "Looking at Rewards Holistically." WorlatWork Journal. Second Quarter 2002, 11(2), 52-64.

Lawler, Edward E. III. Treat People Right!: How Organizations and Employees Can Create a Win/Win Relationship to Achieve High Performance at All Levels. (2003) San Francisco: Jossey-Bass.

Lawler, Edward E. III and Michael McDermott. (2003) "Current Performance Management Practices: Examining the Varying Impacts." WorldatWork Journal. 12(2), 49-60.

Pfeffer, Jeffrey and Robert I. Sutton. The Knowing-Doing Gap: How Smart Companies Turn Knowledge into Action. (1999) Boston: Harvard Business School Press.

Schuster, Jay R. and Patricia K. Zingheim. The New Pay: Linking Employee and Organizational Performance. (1996) San Francisco: Jossey-Bass.

Singh, Parbudyal. "Strategic Reward Systems at Southwest Airlines." Compensation & Benefits Review. March/April 2002, 28-33.

Zingheim, Patricia K. and Jay R. Schuster. Winning Your Company’s Battle for Superkeepers. WorldatWork Conference, San Diego, California, May 13, 2003.

Zingheim, Patricia K. "Winning the Battle for Superkeepers: Talent Your Company Needs to Thrive," L.A. Berger and D. R. Berger, The Talent Management Handbook. (2003) New York: The McGraw-Hill Companies.

Zingheim, Patricia K. and Jay R. Schuster. "Creating a Powerful Customized Workplace Reward Brand," Compensation & Benefits Review. November/December 2001, 30-33.

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

Zingheim, Patricia K. and Jay R. Schuster. "Moving One Notch North: Executing the Transition to New Pay." Compensation & Benefits Review. July/August 1995, 33-39.

Zingheim, Patricia K. and Jay R. Schuster. "Pay Changes Going Forward." Compensation & Benefits Review. July/August 2002, 48-53.

 

Patricia K. Zingheim and Jay R. Schuster are founding partners in Schuster-Zingheim and Associates, Inc., a rewards consulting firm they founded in 1985. They authored two best-selling pay books, Pay People Right! Breakthrough Reward Strategies to Create Great Companies (Jossey-Bass, 2000) and The New Pay: Linking Employee and Organizational Performance (Jossey-Bass, 1996). They are frequently quoted in such publications as Fortune, Wall Street Journal, Across the Board, Working Woman, and Harvard Management Update and have appeared on CNBC, CNNfn, NBC, CBS, and other business talk shows. Pat and Jay were selected as leading pay gurus in The Guru Guide: The Best Ideas of the Top Management Thinkers.

 

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