Any form of variable pay is an attractive tool in attracting and retaining key talent.
High-performing and high-potential individuals recognize in themselves the abil- ity to make a difference in the workforce. They are frustrated by lack of recogni- tion in the differentiation between their performance and that of their peers. If this is not adequately reflected in reward, then attrition is to be expected. For current high-performance individuals—the “superkeepers”—base pay plus performance based lump sums keep pay fresh and exciting, and ensure that the individual employee knows they are valued by the organization for what they deliver.
However, we have already outlined the difficulty in rewarding high-potential employees in base pay.
Options for rewarding high-potential talent include compensation mainly through nonconsolidated payments rather than base pay. These lump sum pay- ments may take the form of being targeted to reflect the achievement of a prior agreed objective or project and may be closely aligned to the changes in the value of the individual, both external and internal. The nimble and flexible approach of using nonconsolidated lump sum payments ensures the business is not making permanent changes to an individual’s base pay when that individual has yet to prove their long-term worth to the organization. Lump sums can provide an attrac- tive and exciting incentive for employees who recognize that their value to the organization is growing. From a management perspective, these payments can be offered mid-pay cycle allowing a closer link between deliverables and payment.
By linking lump sum payments to specific deliverables, the high-potential employee has the prospect of demonstrating how their potential is migrating to actual performance. It is also easy to identify and focus on those individuals who have failed to live up to their earlier promise and are not yet able to translate
USINGCOMPENSATION TOWIN THETALENTWARS 565
potential into output without compounding the problem with inflated base pay.
This scenario demonstrates the flexibility and cost effectiveness of the lump-sum approach.
Using the current annual bonus system can be problematic—the eligibility rules may prevent some future talent from accessing bonus payments as they are too junior. Where annual bonus is specifically focused around the senior team, another option is to create a “group B” bonus pot where entry eligibility is offered to those employees who, while not yet residing in the senior levels of the organi- zation, are identified as being of significant importance to the organization and its succession plan. The inclusion of an employee in group B in one annual bonus cycle does not necessarily mean their inclusion in future years. By putting a spot- light on these individuals relatively early in their careers, it gives the opportunity for employees to comprehend and be incentivized by the opportunities further up their career ladder. Towers Perrin also found that the amount of the bonus paid was less important to some individuals than the fact that they were eligible for a bonus.
LONG-TERM INCENTIVES
Long-term incentives are frequently used creatively in “state-of-the-art” organiza- tions to reward talented individuals. The use of employee share plans and equity over the last decade was seen as extremely attractive. It was viewed as inexpen- sive, engaging the employee in the long-term success of the business, and sharing reward with those who have helped to create it. However, the changes to account- ing rules on both sides of the Atlantic have meant that the share options or stock option has become a less attractive vehicle for the long-term retention of individ- uals. In addition, the dot-com boom and crash means that employees have a more realistic understanding that options may never translate into hard cash. However, stock still has a place in total reward compensation. From a rewarding talent perspective:
■ It closely aligns the individual with the long-term success of the business
■ It has a pleasing balance in that it allows the organization to repay and share some of the value that the individual has participated in building, and helps to share the financial benefits of success
■ It acts as a reminder to both high-potential and high-performance individuals that the long-term sustainability and success of the company is critical
There are alternative approaches to be taken by creating cash LTIPs. Cash
By linking a cash plan to the success of the specific business unit, there can be significant benefit in drawing a clear line-of-sight from the individual employee and the wealth and value that their efforts have helped to build. As Patricia K.
Zingheim identifies “The goal of focusing the efforts of the individual on adding value to the organizational unit in which they work is often best accomplished with long-term pay that emphasises business unit performance.”
SUMMARY
In creating a culture where high-performing and high-potential individuals are rewarded and retained by the organization, the organization has to face some sig- nificant adjustments to its “one size fits all” pay strategy. In the same way that organizations have become used to compensating sales professionals and senior management differently, for state-of-the-art performance management a new mind- set is required to boldly challenge the reward strategy for talented individuals.
As senior management and senior technicians who hold key knowledge and skills about the organization’s success gradually approach retirement, a new pop- ulation of dominant individuals will have to emerge for sustained success. Finding key talent willing to take up residence in your organization is the future challenge for many current Boards and HR executives.
A majority of organizations understand the business requirements for key talent, and know that identifying and retaining the people who can deliver is essen- tial to build a sustainable future. However many organizations have failed to make the link between the success of the organization and the personal opportunity and reward of the individuals concerned. While much talent management research has been conducted on the baby boomer generation, more modern research suggests that some of that received wisdom should now be turned on its head. Generations X and Y seek primarily to increase and maximize their reward using their talent.
They have significantly less loyalty to an organization than previous generations, as in turn, the organization has to them. In this age of outsourcing, off-shoring, fixed-term contracts and short-term memories, it is clear that the enduring slow- build, slow-burn career pattern of the baby boomer generation is less likely to be replicated with the Generations X and Y of today’s workforce. For the company to attract, retain, motivate, and engage these employees, it has to become more flexible, nimble, and smart in rewarding them in a way that is attractive to them.
Employees now have ways of accessing information about their salary and packages literally at their fingertips through the Internet. They have grown up with family members who have received significant amounts of money through the stock market growth. In short, they are aware of their own value and they wish to maximize it during the time period that they choose to work.
The traditional talent management approaches to reward employees, including offering interesting work, wider experiences, and new projects, all act as incentives
USINGCOMPENSATION TOWIN THETALENTWARS 567
to attracting and retaining individuals. However, “show me the money” is the cry that resounds from the upcoming generation of talent.
Our recommendations are wide ranging:
■ Organizations have shown themselves to be significantly behind the wave in terms of their lack of flexibility, foresight, and ability to plan for what they know is inevitable. Organizations need to become more astute in matching the ability, aspiration, and agility of their talented employees. This involves being geared up in creating and setting pay budgets which anticipate the uplift in an individual’s value to the organization and attractiveness to external companies. It involves recognizing that this value does not align neatly to the regulation annual pay cycle or company fiscal year, but opportunities, pay changes, and bonus payments may need to be made at different points through the year to ensure that the key individual is sufficiently recognized.
■ Reward and HR directors are aware that by building a business case they can demonstrate the value of key individuals to the organization and the cost both financially and in terms of degree of difficulty in replacing these individuals.
Our findings from state-of-the-art organizations show the breadth of the full gamut of reward opportunities available. These include:
● the flexible and thoughtful use of base pay
● interesting and exciting linking of annual or shorter term lump sum payments to direct performance and objectives
● the creative use of long-term incentives not just around shares and stock, which may have a cloudy line-of-sight for the individual employee, but through the use of cash plans related to the particular business unit where the individual is employed
● in addition, but not instead of pay, the traditional mainstays of reward in this area—recognition, new opportunities, mentoring, long-term career planning and the incentive of a seat at the top table—should be thoughtfully utilized
Having an effective reward strategy for talented individuals is part of the war chest for HR Directors in addressing new strategies for winning the war for talent, but it is an element that organizations, researchers, academics, and practitioners seem to have put to one side or filed in the pile marked “too difficult”. For the majority of organizations who are complacently behind the wave in seeking to attract and retain individuals to support the future sustainability of their organization, a
Conley, P., Lassonde, R. and Larson, S., “Using Long Term Incentives to Retain Top Talent: Super Rewards for Superkeepers”, The Talent Management Handbook, Berger, L. A. and Berger, D. R. (eds). New York: McGraw-Hill, 2003, pp. 399–413.
Deloitte Research, It’s 2008: Do You Know Where Your Talent Is? Why Acquisition and Retention Strategies Don’t Work. Deloitte Development LLC, 2004.
Deloitte Research, Winning the New Talent Game. Deloitte Development LLC, 2005.
Deloitte Research, Generational Talent Management, Deloitte Development LLC, 2006.
Hay Group, Talent Management—What the Best Organisations Actually Do.
HayGroup Inc., 2005.
Hay Group, Potential—For What? What Every CEO Should Know—New Insights into Selecting the Right Leaders to Secure your Competitive Future.
HayGroup Inc., 2006.
Hotopp, U., “Labour Market Trends” The Employment Rate of Older Workers, London: Office for National Statistics, 2005, p. 73.
Independent Writer, “Be Structured in Managing Talent,” Development and Learning in Organizations, vol. 21, no. 3, 2007, pp. 31–4.
Kermally, S., Developing and Managing Talent, Thorogood, 2004.
Phoeniz, T., Craver, B. and Desai, A. H., “Workforce Analytics: Driving Talent Management Strategies through Workforce Data,” IHRIM.link, April/May 2007, pp. 16–19.
Rees, D. et al., High Flyer Trend Report. Innecto Reward Consulting, 2006.
Thorne, K., Managing the Mavericks, Spiro Press, 2003.
Towers Perrin report, How Leading Organizations Manage Talent, Towers Perrin LLP, 2001.
Williams, M., The War for Talent—getting the best from the best, London: CIPD, 2000, pp. 16–17.
Winkler, V. and Clark, R., Talent Management, London: CIPD, 2007.
Zingheim, P. K., “Rewarding Scarce Talent,” Pay People Right!: Breakthrough Reward Strategies to Create Great Companies, Zingheim, P. K. and Schuster, J. R. (eds). San Francisco, CA: Jossey-Bass, 2000, pp. 232–36.
Zingheim, P. K., “Winning the Battle for Superkeepers: Talent Your Company Needs to Thrive,” The Talent Management Handbook, Berger, L. A. and Berger, D. R. (eds). New York: McGraw-Hill, 2003, pp. 365–84.
USINGCOMPENSATION TOWIN THETALENTWARS 569
43
571
C H A P T E R