Job Rotation, Total Rewards, Measuring value

By Margaret Fiester, Angie Collis and Naomi Cossack Aug 1, 2008
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Job Rotation, Total Rewards, Measuring value​

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Q: What is job rotation? How do I implement an effective job rotation program in my company?

A:Job rotation is the systematic movement of employees from job to job within an organization, with job assignments usually running for a year or more. Rotation programs can vary in size and formality, depending on the organization.

There are many reasons for implementing a job rotation system. They include the potential for increased product quality, the opportunity for employees to explore alternative career paths, and, perhaps most important, the prevention of stagnation and job boredom. Employees who participate in job rotation programs develop a wide range of skills, and generally they are more adaptable to changes in jobs and career and more engaged and satisfied with their jobs in comparison with workers who specialize in a single skill set or domain.

However, job rotation may increase the workload and decrease productivity for the rotating employee and for other employees who must take up the slack. This is why preparation is key to the success of any job rotation program. Tips for effectively managing a job rotation program include the following:

  • Formulate clear policies regarding who will be eligible and whether employees will be restricted to certain jobs or opportunities will be open to people in all job classifications.
  • Determine if the program will be mandatory or if employees will be allowed to “opt out.” Will opting out have an adverse impact on their performance appraisal?
  • Involve the employees and managers in planning job rotations so that there is a clear understanding of mutual expectations.
  • Determine exactly what skills will be enhanced by placing an employee in the job rotation process.
  • Use job rotation for employees in nonexempt jobs, as well as for those in professional and managerial jobs.

By carefully analyzing feasibility, anticipating implementation issues, communicating with and ensuring the support of senior and line managers, and setting up realistic schedules for each position, both large and small organizations can derive value from a job rotation program.

--Margaret Fiester

Q: What are total rewards strategies? How can I develop a total rewards strategy for my company?

A: A total rewards strategy is a system that provides monetary, beneficial and developmental rewards to employees who achieve specific business goals.

Developing a total rewards strategy is a four-step process that includes:

Assessment. A project team, consisting of decision-makers as well as front-line employees, assesses your current benefits and compensation systems and determines the effectiveness of those systems in helping your company reach its goals. The team should examine current policies and practices and should question employees about their opinions and beliefs regarding their pay, benefits, and opportunities for growth and development. This process results in the project team assessment report, which includes recommendations for the new total rewards system and suggests answers to questions such as:

  • Who should be eligible for the rewards?
  • What kinds of behaviors or values are to be rewarded?
  • What types of rewards will work best?
  • How will the company fund this initiative?

Design. The senior management team identifies and analyzes various rewards strategies to determine what would work best in the workplace. It decides what will be rewarded and what rewards will be offered to employees for those achievements. Pay rewards for achievement of goals will not be the only consideration. HR strategists will also determine additional benefits (flexible work schedule, additional time off) or personal development opportunities (training or promotional) that employees will receive as a result of meeting the established company objectives. If you operate in a union environment, it is important to understand that collective bargaining may affect the implementation of your strategy.

Execution. The HR department implements the new rewards system. It circulates materials that communicate the new strategy to employees. Training also commences so that managers and decision-makers are able to effectively measure the achievement and employees are able to understand what they need to do to receive the rewards.

Evaluation. The effectiveness of the new plan must be measured and the results communicated to company decision-makers. Based on this, modifications can be proposed to the strategy for future implementation.

-- Angie Collis

Q: I have been hearing about a value-based performance measurement called Economic value Added. Can you provide me with some basic information on this measurement and how it is calculated?

A:Economic value Added (EVA) is a value-based performance metric introduced in the early 1990s as a technique for calculating the creation of shareholder value. EVA provides shareholders and managers with a greater understanding of how a business or business unit is performing.

The idea behind EVA is that shareholders must earn a return that compensates for the risks associated with their investments in a business or business unit. Many companies have also adopted EVA as a metric for determining incentive pay schemes for management-level employees.

In its simplest form, EVA is the measure of the profits that remain after the costs of a company’s capital have been deducted from its operating profits. In basic terms, EVA is a company’s net operating income after taxes less the cost of all capital used to achieve it. The proposed method for calculating a company’s EVA consists of five steps:

  • Reviewing the company’s financial data or financial statements.
  • Identifying capital.
  • Determining capital cost rate.
  • Calculating net operating profits after taxes.
  • Calculating EVA.

A company’s EVA may be calculated using the following formula:

EVA = net operating profits after taxes – (capital used × cost of capital)

For a company to continue to prosper and grow, it will need to generate average returns higher than capital costs. If a company is unable to realize and show long-term returns on shareholder investment higher than capital costs, the company’s long-term success and continued existence may be seriously jeopardized.

Whether EVA is the best technique for your company will depend on the nature of the company’s business. EVA may be an enhancement to conventional financial measures when a company’s capital configuration is solidly invested in real assets and maintains comparatively low liability. However, if the business is based mainly on indefinable assets such as intellectual capital, EVA may not be the most practical approach.

­ -- Naomi Cossack

Margaret Fiester, SPHR, and Angie Collis, PHR, are HR knowledge advisors in SHRM’s HR Knowledge Center. Naomi Cossack, SPHR, is manager of online content for the center.

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