While companies see the value of and invest significantly in total rewards programs, many don't achieve successful results because of improper execution, according to new research.
Aon Hewitt’s May 2012 report, Total Rewards Survey: Transforming Potential into value, draws on responses from nearly 750 U.S. organizations, revealing that more than half (58 percent) use total rewards programs to drive employee engagement. However, 60 percent describe their engagement levels as low, and two-thirds indicate that the trend in engagement is holding steady or trending downward.
Top Talent Attraction and Retention Programs
Both high-performing companies and the rest identified the same programs as the most important for attracting and retaining talent. Based on responses from all companies, these programs are listed below.
Percent of companies
Health care benefits
401(k) defined contribution plan
Paid time off
Long-term incentives/stock options/restricted stock
Flexible work arrangements/workplace flexibility
Source: Aon Hewitt, Total Rewards Survey: Transforming Potential into value.
“Companies invest millions of dollars each year to recruit and incentivize talented people to be engaged and motivated to perform at their highest levels,” said Jane Kwon, associate partner of Aon Hewitt. “When rewards programs are properly aligned, designed and delivered, the positive impact on individual engagement and organizational performance can be significant. However, we find most organizations are not taking the necessary steps to achieve these desired outcomes.”
Learning from High-Performer Firms
To uncover why employees were falling short on meeting their objectives, the study analyzed the total rewards programs of 150 high-performing companies—those organizations that reported the highest levels of innovation, employee engagement and revenue—and compared them with the remainder of the surveyed companies. According to Aon Hewitt’s analysis, high-performing companies do several things differently with respect to executing total rewards programs:
• They articulate clear strategies and goals. High-performing companies are almost two times more likely to have declared total rewards an area of focus and have a clearly stated strategy vs. the rest of surveyed companies. They are more focused on leadership development, culture and learning.
• They use data and input to drive decision-making.Three-quarters of high-performing companies gather market data to assess the competitiveness of their programs vs. just 61 percent of all other companies. Additionally, high-performing companies are more likely to gather cost data (57 percent vs. 39 percent) and input from employees (40 percent vs. 26 percent).
• They connect their total rewards program to the business and employees. High-performing companies are more likely to align total rewards programs—such as those that focus on culture, challenging work and pay benefits—with top business objectives. Therefore, they communicate better and use targeted communications to meet the diverse needs of their workforce.
• They define the effectiveness of their total rewards programs differently. The primary way high-performing companies define the effectiveness of their total rewards programs is by measuring employee engagement, while the rest of companies define effectiveness as cost vs. budget.
As a result of these differences, 51 percent of high-performing companies say their employees understand the value of their total rewards programs compared to one-third of other companies, according to the survey. Fifty-one percent report increases in employee engagement over the past 18 months, compared with just 30 percent of the rest of the firms surveyed.
Equally important, high-performing companies report that they are more effective in achieving key business objectives such as operational effectiveness (96 percent vs. 75 percent), customer service (85 percent vs. 48 percent) and quality (63 percent vs. 28 percent).
“High aspirations and mediocre execution are producing a lot of pressure for change,” said Kwon. “This is a time for breakthrough thinking that requires bold new ideas.”
Incentive Pay Tips and Pitfalls Shared, SHRM Online Compensation Discipline, June 2012
Benefits Pay Dividends for Employers, Research Shows, SHRM Online Benefits Discipline, May 2012
Tips for Upgrading Your Total Rewards Communications, SHRM Online Benefits Discipline, January 2008
SHRM Foundation Publishes 'Total Rewards Strategies' Guide, SHRM Online Benefits Discipline, July 2007
Implementing Total Rewards Strategies, SHRM Foundation, July 2007
SHRM Online Benefits Discipline
SHRM OnlineHealth Care Reform Resource Page
SHRM OnlineRetirement Plans Resource Page
SHRM OnlineWorkplace Flexibility Resource Page