Schuster-Zingheim and Associates, Inc.- Pay & Rewards Tips

The SZA Pay & Rewards Bulletin, February 2003

Pay & Rewards Tips

Patricia K. Zingheim and Jay R. Schuster

Here are answers to questions that we're frequently asked. These may help you and your organization:

Q: What’s "total rewards"?

A: "Total rewards" assumes people want a lot from their company and will help the company succeed to get it. It comprises four components:

Compelling future—providing people with a company vision they are excited and proud about

Individual growth—providing people the chance to learn and grow and a developmental track to make them more valuable to the company

Positive workplace—establishing a workforce with leaders, co-workers, and other positives that make coming to work a good experience

Total pay—base pay, incentives (cash and equity), benefits, and recognition and celebration.

All are important, but the emphasis can vary from company to company.

Q: What's happening now that stock options are "underwater"?

A: We think companies are taking advantage of lower price/earnings ratios and granting more options—if they have them available. A few companies are repricing options, but most are staying the course because they believe over the long run ownership will remain an important element of total pay and total rewards.

Q: What do we do when our company is paying competitively but employees are still dissatisfied?

A: Remember people work for more than pay. This means you need to dig deeper into possible root causes of dissatisfaction and lack of trust. Analyze your company’s total rewards for strengths, weaknesses, and differential advantages/disadvantages.

Q: Our senior leadership doesn't want to change any pay programs because of concern about rocking the boat. How do we convince them to allow change?

A: To gain leadership acceptance and sponsorship, all human resource initiatives need a strong business case. You must be able to answer the question, "How does what we’re proposing add measurable value to our company's business?"

Q: Why are some companies moving away from annual "merit" pay adjustments?

A: Because a "merit" increase continues to pay for one year’s performance forever. A lump-sum performance award is often a better choice—people need to re-earn it year after year.

Q: Why is it often better to have incentives "funded" at a business’s profit-center level rather than awarded only for individual performance?

A: Because funding ensures that the company has the money to spend on the incentive award. It prevents overspending on incentives that don't add value to the business.

Q: How do I know survey information I get off the Internet is credible?

A: You don’t unless you know the source of the data. You’ve got to know as much about the data from the Web as you do about the data you get from any other survey. Be inquisitive—make sure you investigate your sources.

Q: Why is it important to create a unique total reward "brand" for our company?

A: Because this makes your company attractive to the sort of people you want to have join and stay with your company. Southwest Airlines, General Electric, and General Mills do this very well. For example, if you want only people who are not risk-averse and are willing to have their performance count, it’s critical to have deeply used incentives and equity ownership as part of your total reward solution.

Q: If I'm going to hire an outside provider to help with a human resource program, how do I know I have the right company, team, or individual?

A: Check references carefully. Make sure the work they did for the reference is similar to what you want them to do for you. Be certain the references are for the specific people who will be working on your project, not for the company in general. What counts are the people who are helping you because many service providers have high professional turnover.

Q: What's happened to "scarce talent" initiatives?

A: They're still with us, but on a more selective basis. We now need to be agile enough to focus our pay and rewards on people who have critical and scarce skills that our business needs. No more spreading out pay adjustments like butter on a bagel, which probably means limited pay adjustments for skills that are in oversupply in the external market.

Q: What’s wrong with benchmarking and surveying?

A: Nothing, as long as you don’t mimic the results blindly. Benchmarking and surveys often don’t tell you why companies do what they do and what the results are—companies only want to share the positives. So you need to pattern a human resource initiative based on a business case for your company specifically. The final test is not whether it’s prevailing practice, but whether it’s best practice for your company

Q: Our leadership becomes very concerned about our reward programs when our company misses key goals. What can we do to fortify our reward solutions in expectation of this?

A: Remember that every human resource program appears to work in good economic times. Make sure you model out what will happen when times aren’t so good. Consistency over time is what most adds value to your workforce.

Schuster-Zingheim and Associates, Inc. Home Page

FOR FURTHER INFORMATION CONTACT
Schuster-Zingheim and Associates, Inc.
1541 Bel Air Road
Los Angeles, CA 90077-3021
Phone 310-471-4865 FAX 310-471-4859
E-mail: sza@schuster-zingheim.com
Web Site: www.schuster-zingheim.com or www.paypeopleright.com

All material © 2003 Schuster-Zingheim and Associates, Inc.

Q:	What’s "total rewards"?
	A: "Total rewards" assumes people want a lot from their company and will help the company succeed to get it. It comprises four components: Compelling future—providing people with a company vision they are excited and proud about Individual growth—providing people the chance to learn and grow and a developmental track to make them more valuable to the company Positive workplace—establishing a workforce with leaders, co-workers, and other positives that make coming to work a good experience Total pay—base pay, incentives (cash and equity), benefits, and recognition and celebration. All are important, but the emphasis can vary from company to company.
Q:	What's happening now that stock options are "underwater"?
	A: We think companies are taking advantage of lower price/earnings ratios and granting more options—if they have them available. A few companies are repricing options, but most are staying the course because they believe over the long run ownership will remain an important element of total pay and total rewards.
Q:	What do we do when our company is paying competitively but employees are still dissatisfied?
	A: Remember people work for more than pay. This means you need to dig deeper into possible root causes of dissatisfaction and lack of trust. Analyze your company’s total rewards for strengths, weaknesses, and differential advantages/disadvantages.
Q:	Our senior leadership doesn't want to change any pay programs because of concern about rocking the boat. How do we convince them to allow change?
	A: To gain leadership acceptance and sponsorship, all human resource initiatives need a strong business case. You must be able to answer the question, "How does what we’re proposing add measurable value to our company's business?"
Q:	Why are some companies moving away from annual "merit" pay adjustments?
	A: Because a "merit" increase continues to pay for one year’s performance forever. A lump-sum performance award is often a better choice—people need to re-earn it year after year.
Q:	Why is it often better to have incentives "funded" at a business’s profit-center level rather than awarded only for individual performance?
	A: Because funding ensures that the company has the money to spend on the incentive award. It prevents overspending on incentives that don't add value to the business.
Q:	How do I know survey information I get off the Internet is credible?
	A: You don’t unless you know the source of the data. You’ve got to know as much about the data from the Web as you do about the data you get from any other survey. Be inquisitive—make sure you investigate your sources.
Q:	Why is it important to create a unique total reward "brand" for our company?
	A: Because this makes your company attractive to the sort of people you want to have join and stay with your company. Southwest Airlines, General Electric, and General Mills do this very well. For example, if you want only people who are not risk-averse and are willing to have their performance count, it’s critical to have deeply used incentives and equity ownership as part of your total reward solution.
Q:	If I'm going to hire an outside provider to help with a human resource program, how do I know I have the right company, team, or individual?
	A: Check references carefully. Make sure the work they did for the reference is similar to what you want them to do for you. Be certain the references are for the specific people who will be working on your project, not for the company in general. What counts are the people who are helping you because many service providers have high professional turnover.
Q:	What's happened to "scarce talent" initiatives?
	A: They're still with us, but on a more selective basis. We now need to be agile enough to focus our pay and rewards on people who have critical and scarce skills that our business needs. No more spreading out pay adjustments like butter on a bagel, which probably means limited pay adjustments for skills that are in oversupply in the external market.
Q:	What’s wrong with benchmarking and surveying?
	A: Nothing, as long as you don’t mimic the results blindly. Benchmarking and surveys often don’t tell you why companies do what they do and what the results are—companies only want to share the positives. So you need to pattern a human resource initiative based on a business case for your company specifically. The final test is not whether it’s prevailing practice, but whether it’s best practice for your company
Q:	Our leadership becomes very concerned about our reward programs when our company misses key goals. What can we do to fortify our reward solutions in expectation of this?
	A: Remember that every human resource program appears to work in good economic times. Make sure you model out what will happen when times aren’t so good. Consistency over time is what most adds value to your workforce.