Many Chief Executive Officers (CEO’s) and Chief Financial Officers (CFO’s) complain that their Human Resource professionals do not repor

Module 5: Possible Pitfalls, Evaluation, and Metrics

Topics

Topic 1: Possible Pitfalls of Implementing, Communicating, and Measuring Total Rewards Topic 2: Metrics and Evaluation Topic 3: Conclusions

Topic 1: Possible Pitfalls of Implementing,

Communicating, and Measuring Total Rewards

As with any major initiative with many steps, various people and departments involved, and tasks that are designed and implemented over a long period of time, there are pitfalls that are possible. Some of the more common ones are presented in this section in order to bring awareness to them.

1. Jumping in without the required research: Organizations are action-oriented and

tend to want to begin solutions before having done adequate research. However, without the proper supporting data, wrong decisions can be made. It is important to take the necessary time and have the money to gather the required data on which to base the important decisions.

2. Not having support in the organization: Not only time, but also funding, will be required for the staffing needed for the implementation of total rewards and for the rewards themselves. Without the key leadership's support within the organization, the proper communication will likely not occur and the rewards will risk being revised or even eliminated. The support of the organization needs to be confirmed at the beginning,

during the entire design and implementation process, as well as ongoing as the rewards are being evaluated.

3. Not analyzing the costs: The cost of rewards for work performed is one of the largest segments of an organization's budget. Without properly analyzing the costs of the rewards, separately and combined, decisions made about them cannot be effective. The analysis of the costs will include not only the expense in today's dollars, but also the cost in the future.

4. Attempting to do too much too quickly: If too much is attempted at once, the process can suffer. Each step is important and must be done properly because the success of the

implementation depends on the foundation of data gathered. The care taken in communicating, obtaining buy-in, and concurrence can be determining factors toward the success of the programs. Take the time needed for each step of the process, including the essential steps of measurement and evaluation.

5. Not establishing objectives and metrics that are linked to business objectives: The core of the total rewards model is that the rewards offered are aligned to the business objectives. Unless program objectives and metrics are aligned to the business objectives of the organization, success cannot be evaluated.

6. Having to take rewards away: If rewards are introduced and then taken away, it's worse than never having had them at all. Employees quickly develop a sense of

entitlement to rewards. Taking rewards away creates a sense that the organization is not supporting them, is punishing them, or is not appreciating them. Take great care that any reward implemented can be sustained. But if something has to be taken away, also take great care in communicating why the decision was made to do so.

7. Unexpected change in requisite KSAs and/or business plan: Due to changes in the domestic or global economy, changes in the competition, expansion, mergers, or the introduction of expanded products or services, changes for the organization may occur that could result in the organization requiring a different set of KSAs in order to be successful. If this happens, the organization will need to assess if the current reward

programs will still attract, retain, and motivate the needed employees. 8. Communication issues such as errors in the messages or not understanding the

audience: The rewards programs are only as good as they are communicated and administered. If the communication has errors, is not targeted to the audiences inside and outside the organization, and not customized for those various audiences, the programs may not have credibility and may not be seen as positive. Cultural differences of countries must also be considered. One organization launched an expensive marketing program for a new product only to learn that the colors it used in its advertisements were viewed as vulgar in the country it was targeting. This can happen with the marketing of reward programs too. Too many words and too much clutter are not effective; keep it

simple, especially on web sites. 9. Measuring the wrong things: Measuring the wrong things is worse than not measuring

at all, because key decision makers may make a correlation between the results the wrong metrics are representing and the rewards programs. For example, if the level of satisfaction with rewards alone is reported rather than engagement of the employee, commitment to the organization, or level of satisfaction with various segments of the rewards programs, the level of satisfaction increasing or decreasing overall may encourage changes to the programs when they are actually effective.

10. Not measuring: Without a measurement, the effectiveness of the programs cannot be

determined. Not only are the programs to be measured, but key metrics that gauge the relationship between the programs and the organizational goals are essential. When measurements are taken and reported, it highlights that the program and the objective it relates to are important. Without measurement, the necessary revisions cannot be determined. Without measurements, money may be wasted on ineffective programs.

11. Using available data (not relevant): Using information that is already available may be easy, but the data may not be relevant to the reward programs. The available data may be measuring efforts, tasks, or results that are unrelated to the success of the organization. For example, overall turnover of an organization may be measured, but

without knowing if turnover has increased or decreased in certain positions that the rewards are attempting to affect, the data is not helpful. The turnover may, in fact, be a positive outcome.

12. Measuring everything: When an organization does not really know what to measure, it is likely to try to measure everything. This dilutes the communication of the right measures, leads to decisions being based on irrelevant data, and wastes the time of those collecting and reading the data.

Pitfalls Specific to Web Sites

Increasingly, organizations use a web site designed specifically for the communication of their rewards. In addition to general rewards communication, many organizations make their total rewards statements available online and update the site frequently for employees. Because the

web sites are such a frequently used method of communication, following are a few suggestions to address any possible pitfalls specifically related to web sites:

1. Review the web site every time you update data: And conduct a complete review at least once annually. Messages can become outdated quickly, and information that is irrelevant or incorrect hurts communication.

2. Don't be afraid to include as much information as you want: The goal is to be

inclusive of all the rewards while also keeping the site uncluttered and not overly

crowded. This can be achieved through proper design of the site, with links to additional information.

3. Don't forget to obtain employee input and feedback: Do not assume that what is thought of by the authors or designers of the web site as being effective is necessarily so for employees. Ask for feedback about the content, layout, ease of operation, and style of

communication. 4. Don't think you are done at implementation: Just because a web site has been

launched does not necessarily mean it is complete. Daily and continuous monitoring must be done, as well as the various revisions that will need to be made to the programs.

The possible pitfalls and suggestions discussed in this segment are just a few examples of what organizations have found to be areas to plan against and the areas to plan toward. With the

proper attention to the details mentioned, and proper execution and monitoring, most of the pitfalls can be avoided and the suggestions incorporated.

Topic 2: Metrics and Evaluation

Why Measure?

Steven Covey (2004) states that we must begin with the end in mind. He expresses that "individuals, families, teams, and organizations shape their own future by first creating a mental vision for any project, large or small, personal or interpersonal" (p. 152). Without the end in sight, in some measurable way, we will not know when and if we have achieved our desired results. The end in mind for total rewards is the accomplishment of organizational objectives, thus the objectives of the organization provide the foundation for the key measurements of success of the total rewards programs.

It is often heard in business that "What gets measured gets managed." It is a way of calling attention to what is important. It's also common to hear that nothing implemented is complete until evaluated to see if what has been intended actually works. If there are no measurement devices in place, what was intended is unknown and evaluation of the success is only speculative. A total rewards program, like any other program of significant expense and potential, must demonstrate that it has made a difference toward the successful achievement of the organization's objectives. Unfortunately, with the rewards program, there may not always be a direct line of cause and effect that can be drawn between the success of the organization and its mix of rewards. This is because there are many other variables in the environment that might

affect the employees, their satisfaction, and productivity. Some of these intervening variables could be coworkers and supervisors, the job itself, the equipment being used, reorganization, downsizing, mergers, expansion, or outsourcing. Outside variables such as the economy, or health or family issues could also play a part. While affecting employees, the variables have an impact on the company itself and the accomplishment of its business strategy, as most are out of the control of the employee and they could intervene or affect an exact evaluation of the total rewards program (WorldatWork, 2007).

However, even with its limitations, "measures matter, both as a guide to management and as a basis of performance management. Therefore, HR professionals must be able to measure how success in total rewards relates to the strategy execution process" (Huselid, Becker & Beatty, 2005, p. 238). Measurement of results keeps efforts aligned with the intended results. To make the process complete, metrics to report on the effectiveness of the programs need to be designed and agreed upon, and systems put into place to track data measured and reported.

A sound performance measurement system for total rewards does two things. First, it improves decision making about the current rewards by helping focus on those aspects of the organization

that create value, and it provides feedback to evaluate current strategies and predict the impact of future decisions. Second, it provides a valid and systemic justification for resource allocation decisions. Organizations allocate significant percentages of their revenues to rewards for the work produced, so there is a need to show that the resources spent are contributing to the organization's success (Huselid, Becker & Beatty, 2005, p. 110).

Definition of a Metric

Metrics, also known as measures or key performance indicators, are simply a tool for assessing

the impact of a particular project or activity. Although these are often quantitative or numeric in nature (improve sales by 20 percent, for example), they can also be qualitative (improve staff satisfaction levels).

Metrics can include quantitative and qualitative measures, such as reducing turnover, reducing time to hire, increased production or services, more satisfied employees, more satisfied customers, ability to expand or introduce new products, or a number of organization-specific key

objectives of the business plan. The measurements could be historical averages, recent experiences, projected future performance, internal reference points, or external reference points. In either case, qualitative or quantitative, metrics provide clear and tangible goals for a project, and criteria for project success. It is through the measurement and reporting of key metrics that programs can be assessed, evaluated, and changed, if necessary, to improve effectiveness.

Common Characteristics of Good Measurement Tools

Before deciding the right measures and setting up the systems to gather and report the data, it's important to verify the key objectives and the corresponding metrics with key leadership to ensure agreement. It is also crucial to the process that the metrics link to the key objectives of

the organization and that the tools used to evaluate the programs are supported prior to initiation of the programs. There must be shared agreement on the credibility and usefulness of good measurement tools, which tend to have some common characteristics. Following are four that many agree are necessary for the measurements to be effective (WorldatWork, 2007):

• are explicitly reflective of the objectives attempting to be achieved; send the right messages to employees

• are tangible measures that are clear and unambiguous

• are credible; can be believed as being achievable and relevant to the success of the organization

• are verifiable and accurate

Types of Measurements

Because measurements can be either quantitative (numbers) or qualitative (opinions, behaviors, etc.), how can an organization decide which method would be more effective as a measurement tool? Most organizations do not rely solely on one method or the other, but rather use some

combination of the two. Following is a description of each, and in all cases, "It's not what you think or feel, but what you have the facts to prove" (Huselid, Becker & Beatty, 2005, page 246). Regardless of whether the measurement is quantitative, qualitative, or a combination, the data must be valid and credible. Following are descriptions of the two measurement tools:

Quantitative: these are numerical representations of the outcomes (such as percentages, ratios) and can be grouped into three major categories:

• direct impact such as reduced turnover, increased acceptance rates

• evaluative outcomes are conclusions that result from a total rewards design, such as the organization's competitive market position, its total rewards cost per employee, and

its rewards mix

• indirect performance outcomes may be partially attributable to a total rewards program, such as revenue per employee, profit per employee, productivity, customer retention

Qualitative: these measures answer questions, and gather opinions, intentions, or impressions of individuals. While qualitative measurements may be more subjective than quantitative

measures, they are equally important in determining effectiveness. Examples of the questions that qualitative measures answer are: Do the employees feel engaged in their work and the organization's objectives? Are employees satisfied with their rewards and, if so, which ones are the most important to them? Have they thought about leaving the organization in a past certain period of time? Qualitative measures will give you descriptions, not numbers.

Following are a sampling of possible quantitative and qualitative metrics:

Quantitative:

• percentage of exceptional candidates attracted for high-value positions

• percentage of retention of high performers in key positions

• percentage of eligible employees for promotion to key positions

• percentage success rate of external hires

• percentage productivity per employee

• cost of rewards per employee

• percentage enrollment/use of benefits

Qualitative:

• knowledge of rewards and value of them

• performance of new hires

• cultural studies

• description of employees’ feelings toward the total rewards program

Organizations will typically select more than one type of metric in order to evaluate the success of their total rewards programs toward the success of the organization.

Relationship of Metrics and Business Objectives

The key to an effective method of evaluating success is not necessarily if the metrics chosen are qualitative or quantitative, or even a combination of the two. The key is if the metrics chosen are indeed indicators that the rewards given are helping the organization achieve its business objectives. It is important to consider "what relationship does the metric have to the success of a business objective?" (Huselid, Becker & Beatty, 2005, p. 138). Relationships between total rewards results are measured through the metrics (some of the above) and specific business outcomes such as growth and exceptional customer service. In the next company spotlight

(Sepracor), the relationship between the organization's business goals and the rewards and the rewards metrics is illustrated.

Company Spotlight: Sepracor

The following example from the company Sepracor demonstrates how they aligned their business strategy, rewards, and metrics.

Sepracor developed six strategic business goals:

1. Recruit the right talent 2. Measure the performance of talent 3. Reward and retain key talent 4. Develop talent 5. Optimize organizational and core leadership competencies for selection,

performance, and promotion 6. Improve operations, service delivery, and communication to optimize and

measure effectiveness of HR programs

The measurement scorecard and ROI framework was included in their business plan and stated:

• what is important to measure

• measurement methodology

• baseline data/findings

• improvement goals (over specific time period)

• positive and negative results

Five key measures were identified to populate the scorecard and gauge year-over- year improvements and plan for adjustments annually. They were:

• recruitment savings

• reduction in first-year attrition and turnover

• reward and retention of key talent

• external brand recognition

• employee commitment, innovation, and enthusiasm, with executive participation

Link to strategic goals: the five metrics would support the company's growth, enable the shift in focus from the development of pharmaceuticals to launching a new drug, would allow doubling the size of the sales force while retaining and motivating key research and development, commercial and functional talent.

(Source: DeTore, Jackson, Strategic HR Review, Sept/Oct, 2006)

Scorecards

Organizations are accustomed to scorecards, which provide a quick look at how they are doing in certain important areas. Because of technological advancements, measurements have become easier. Top leadership in particular, including boards of directors, want to know in a snapshot how the organization is doing on its important drivers. They don't have time to listen to long presentations, read through long pages of reports, or analyze data. They want a few measurements that will tell them quickly if there are any concerns or if everything is on track. For the snapshot to be an effective one, it needs to show a balanced set of metrics and not, for example, only financial measures. Some categories, such as financial measures, can have a short-term success but long-lasting repercussions unless the steps to have the financial success

are balanced with other factors. For example, financial gains can be made by cutting staff or eliminating services to customers. In the short term, the balance sheet would look good, but soon the areas of employee and customer satisfaction would likely suffer. Over the past years

the concept of a balanced scorecard has been introduced (Manas & Graham, 2003, Kaplan & Norton, 1992) to help key an eye on four important areas to provide a larger picture of needed results. And even more recently, the communication through a scorecard for human resources expands on the concept.

Total Rewards Scorecard

Each organization is unique and also has its own unique business objectives. Organizations require specific KSAs and targets their population based on their needs. The population targeted

has a certain set of needs, wants, and preferences. Therefore, the total rewards scorecard, combining the total rewards metrics and the alignment to business objectives, will differ for each organization, and may be even further differentiated for each level and function within the organization.

Federal Express, one of the largest package movers in the world, has a major hub of its operations in Memphis, Tennessee. Every night hundreds of airplanes arrive containing

thousands of packages that must be unloaded and sorted to their next destination. The planes are reloaded and depart again in a matter of hours. One of the position categories of the evening's operation is that of package movers/sorters. These are the employees who arrive to work at midnight and work, on average, four to eight hours per shift. It is essential to the success of the business to have reliable employees who are motivated each evening to demonstrate their knowledge of the equipment they use and the codes for the locales of the destination. They also need skills and abilities to lift, hand off, or otherwise direct the packages so that they are loaded onto the appropriate outgoing plane.

The organization, located in a city rich with higher education institutions, discovered through their research that college students who needed financial assistance were their targeted employee population. They were able to successfully design a rewards package to attract, retain for at least four years, and motivate employees, who were free to take classes during the day and evening, having their school expenses covered. The employees typically move on after they complete their undergraduate degrees, while some go on to graduate school. Although turnover can, of course, be expected, the rewards package yields ready recruits at all times. Following is a

possible set of total rewards metrics aligned to the business objectives based on this organization.

One of their core business objectives was to:

Reliably and economically ship packages around the world overnight

In order to achieve this business objective, one set of requisite employee KSAs was:

Knowledge of the scanning equipment, city, state, and country codes. Skills and abilities to lift, move, direct large numbers of packages in an efficient and quick manner. Ability to work

midnight to morning shifts of varying lengths, six or seven days a week if needed. Willing to relocate to Memphis, Tennessee.

One segment of the population that would likely hold these KSAs:

College-bound populations with need for financial assistance with college expenses, physically and mentally able to meet the bonafide occupational requirements (those KSAs essential to demonstrate in the position).

Rewards designed by the organization to attract this segment:

• all tuition, books, fees, plus a housing stipend for undergraduate and post-graduate degrees

• competitive base hourly wage

• pay for full shift even if work is completed in less than a full shift

• fully paid medical, dental, and life insurance

• subsidized dormitory-type housing available, if requested

Reward metrics to evaluate the success of the total rewards program:

• successfully move 100 percent of packages each evening at the central hub

• retain mover/sorter employees for an average of four years

• have 20 percent of current mover/sorter positions with qualified backup applicants

(Source: Based on author's personal benchmarking visit to FedEx hub, Memphis, Tennessee, 2000. While

this information was true at the time, the reward package may have changed since. The situation is

presented for illustration purposes only.)

Table 5.1 Business Objectives and Total Rewards Metrics for Federal Express

Business Objective Total Rewards Metrics

With 100 percent reliability, economically ship packages around the world overnight

Successfully move 100 percent of packages each evening at the central hub

Retain mover/sorter employees for average of four years

Have 20 percent of current mover/sorter positions with qualified backup

applicants

In this case study of Federal Express (information obtained through the experience of

benchmarking the organization), it is clear that the organization was applying a strategic marketing effort to their recruitment, retention, and motivation of employees required to fulfill their business objective. The business objective was in clear sight to the leaders of the organization, the required KSA were assessed, and they identified what rewards would likely attract, retain, and motivate the employees with the needed KSAs to fulfill the objective. The evaluation of the success was clearly identified with three metrics that related directly to the business objective. More about the crucial step of evaluation follows.

Evaluating Total Rewards

After the steps of designing, implementing, communicating, and measuring are finished, the evaluation of the program's success needs to be done. What are the metrics telling the organization? Are the rewards assisting the organization toward success? Are some rewards

more effective than others? Are some segments, levels, and functional jobs being recruited, retained, and motivated while others are not? A common way of beginning the evaluation is accomplished through a gap analysis. The metrics are measured against the target set. This is why it is important for each metric to have a set desired value. The baseline measurements are helpful in order to see how much, if any, the target has moved, but the baseline is just the beginning point. The desired metric will have a new value.

1. Gap analysis: This is a look at the metrics at the end of a preset period of time in relation to the baseline set or period-over-period movement in the measurements. While

quantitative measures are more easily assessed than are qualitative ones, information behind the movement in the quantitative measurements needs to be examined to see if any intervening variables are at play. For example, if the acceptance rate has greatly increased for key leadership positions, has there been reorganization in another local company that might cause more applicants to be available? Qualitative measures also

need extra assessment as well. For example, if the level of satisfaction of the employees has increased based on a survey, did other events happen around the time the survey was taken to influence the results? For example, was there new communication about rewards distributed? Was there a change in the key leadership of the organization? Was a reorganization of the organization introduced? Metrics are certainly an indicator, but should not be used without additional information about other variables that may affect them.

2. Determination of needed changes: Changes are not necessarily recommended based on the metrics. It is recommended that a team of a cross section of managers and employees evaluate the data and make recommendations for changes, if any. Some

reward programs take time to cause a change in the results. Changing rewards can often be confusing and time consuming. Sometimes the results that show up in the metrics are due to intervening factors caused by events out of the realm of influence of the reward programs. Careful evaluation and assessment needs to occur before any changes are made.

3. Cost analysis: As in the implementation of the total rewards program, a cost analysis is necessary again if changes are recommended. Reward programs and their respective administration, implementation, and communication can be expensive. Prior to gaining the support and approval of key leadership, the financial cost of the changes, as well as

any negative/positive costs, must be analyzed. 4. Key leadership buy-in: Any changes to the rewards programs will need the approval

and support of key leadership of the organization. Rationale based on the business objectives is imperative. No change should be recommended only because it appears to be or is thought to be needed. A sound business case must be made for the decisions.

5. Communication: A new communication plan will need to be designed to introduce any changes in the rewards. When changes are made to plans, they may require more communication than would a new plan. The reasons behind the changes will need to be clearly articulated so that those receiving the news of the changes will not be left to

imagine on their own why the changes are being introduced. As with a new plan, there will need to be various levels of communication, for the key leadership, managers and supervisors, and the general population of employees. Some training may also be required.

6. Implementation of changes: Once again, the programs will be implemented, the plans administered, and, perhaps, new metrics determined. Whether new or revised, the metrics will again be tracked and communicated.

7. Analysis and evaluation: The steps of analysis and evaluation will occur periodically. While communication of the metrics will most likely be monthly or quarterly, the analysis and evaluation of the results of the total rewards programs will typically be on an annual

basis.

As in all major initiatives and processes, total rewards success is a continuous cycle of research, design, implemen

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