Manage Losses Due To Retirement

bob retirement

For many organizations the biggest challenge will be replacing the retiring Boomers, particularly if they have spent all or most of their career with one employer. Some of the studies that have been done recently argue that Boomers do not intend to delay retirement while others say they will never fully retire.

This contradiction can be clarified only by carefully defining “retirement.” If the employer has a defined benefit pension plan that enables employees to retire with full benefits when their age and years of service total 75 or more, it is reasonable to assume that some will exercise that right. U.S. laws limit the ability of some employees to continue to work for an employer while they are receiving pension benefits from that organization, and there are limitations with regard to the way in which they are retained after retirement.

It is possible to extend career management strategies beyond the time when an employee ceases to be a full-time, permanent employee. If an organization needs to train new personnel, it could create a training contract with retiring employees to accomplish the training. Having a retiree spend one week a month or one day a week running a focused training program may allow the organization to utilize the retiree as a contractor and to accomplish what otherwise would have been a difficult challenge. Although mentoring and other on-the-job approaches can theoretically accomplish the same thing it is often found that daily work demands cause underinvestment in training time, with dire consequences when the experienced person leaves.

Many organizations have created the ideal incentive for forcing out everyone eligible for retirement, no matter how badly they are needed or want to stay. Overly generous retirement plans; fully paid retiree health programs and other rewards for past service may provide more value to those who leave than those who stay. Employees who are eligible for full retirement at a fairly young age can begin to receive the income stream from the pension plan and move on to collect a second income from another organization. Defined contribution plans lend themselves to encouraging continued service more than defined benefit plans, since additional benefits will accrue beyond normal retirement. Also, those who are relatively secure financially are in a position to contribute more to these plans in their later years.

An excerpt from my book: Rewarding Performance: Guiding Principles; Custom Strategies By Robert J. Greene

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Communicating Reward Strategies

Communication is key to promoting an understanding of the strategy and the reasons why it is what it is. Communication also can inspire employees to focus on organizational objectives and to contribute to its performance.

Effective communication is one of the best tools rewards practitioners have. Informing, influencing and inspiring employees is best done by ensuring they understand the reasons for the rewards strategy and have the opportunity to surface their beliefs about its soundness. Every employee wishes to be rewarded equitably, competitively and appropriately. But if employees are left to guess what the rewards strategy is, why it was selected and how it impacts everyone, discontent can be created by their assuming things are worse than they are. Respecting the right of employees to know how they and others will be rewarded can help clear up misperceptions and convince employees that the organization is acting appropriately.

An excerpt from:“Communicating Rewards Strategies To Employees: Informing, Influencing and Inspiring” Email rewardsystems@yahoo.com to request a copy of the full article by Robert J. Greene, PhD, CCP, CBP, GRP, SPHR, GPH

Can HR Functions Do Better By Doing Things Differently?

HR functions must find an optimal way to get things done. If the work can be eliminated, done better, or done by others, HR executives should evaluate the options and make the changes that will maximize effectiveness and efficiency

What, If Anything, Needs To Change?

If an HR function finds itself overloaded and/or not competent to perform critical human resource management tasks effectively, a series of questions should be asked:

  • Does this need to be done at all?
  • Can this be done better?
  • Could this be done on a different schedule?
  • Should the HR organization be staffed differently?”
    One of the challenges faced by HR functions is staffing and organizing appropriately. Some HR units consist of HR Generalists while others are dominated by Specialists in functions such as Compensation, Benefits, Staffing and the like. Highly technical issues (e.g., Benefit program design) challenge the units composed of Generalists, while units staffed by Specialists often make decisions narrowly focused on one function without considering the impact on others. The appropriate balance of skills is the remedy and the future staffing and training efforts should be focused on achieving that balance.
  • Should HR be doing this or should it be handed off to the line?

If the answers to these questions leave HR with work that it is not staffed or competent to perform at the levels required then one of the options that is increasingly being considered is outsourcing that work.

If work is to be outsourced the short and long-term consequences of doing so should be carefully considered. 

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An excerpt from: “Can The Rewards Management Function Do Better By Doing Things Differently? email rewardsystems@yahoo.com to request a copy of the full article.

5 Business Reasons To Consider Including Variable Pay In The Total Direct Compensation Strategy

  1. Economics: 
The conversion of what have been fixed costs to variable costs is an advantage of some significance. Variable pay awards do not compound the way base pay adjustments do, thereby lowering the escalation of rates over time. Assuming variable pay is tied to performance, it both allocates awards more optimally and is contingent on the organization’s economic ability to pay. Finally, variable pay plans can be customized to fit different business units, providing a localized customization to the unit’s ability to pay and creating a focus on its specific objectives.
  2. Competitive Practice:
 Variable pay programs can be an effective tool for attracting and retaining those with critical skills, as well as high performers. Since the existence of a variable pay component in the compensation package offers less of a guarantee but more opportunity relative to income, this type of package will disproportionately attract those confident of their ability to perform well and willing to do make the necessary effort. Leveraging the organization’s strengths via variable pay plans is another opportunity. Also organizations experiencing rapid stock price escalation can include a heavy dose of stock options/grants in its rewards package, thereby giving it a competitive advantage. And the flexibility associated with variable pay plans can enable the organization to emulate the best in its industry in order to say competitive, which is sometimes difficult with only base pay or benefits.
  3. Motivation: 
Defined objectives/criteria and standards enable the organization to provide a sharp focus on its priorities, and to do so at every level. Variable pay awards act as reinforcement for those performing at high levels and provide a scorecard to enable people to continuously evaluate results. To the extent that people are provided with a “shared destiny” using group incentives, there can also be a strong motivation to support each other and to work cooperatively rather than competing in a dysfunctional manner. The prerequisites to performance are the ability to perform, being allowed to do what it takes, the desire to perform and the knowledge of what constitutes performance. Variable pay plans can function to ensure these prerequisites are in place.
  4. Communication:
 Variable pay, particularly if designed as an incentive, is one of the strongest signals an organization can send to its people as to what is important. By continually measuring results high quality feedback can be provided, enabling people to know how they are doing and how to do better. By making employees eligible for variable pay awards it sends the message that what they do counts and that the organization is willing to show its appreciation tangibly. Finally, the criteria used in variable pay plans can promote the importance of mission fulfillment and of living the defined values while pursuing organizational objectives.
  5. Sense of Ownership:
 There are other reasons for considering variable pay. The plans can be used to communicate and direct a change from an entitlement culture to a performance culture, as well as promoting employee engagement. Variable pay can also provide a sense of ownership, even for organizations not able or willing to use stock or share equity. Emotional ownership can produce results even though financial ownership is not possible. By balancing the definition of performance to include both the short-term and the long-term it is possible to elicit a balanced perspective. Short-term maximization at the expense of long-term optimization is a danger that is fueled by having all rewards tied to performance, which many organizations do. Finally, a reason for using variable pay is that it works. On the other hand, damage can result when variable pay plans motivate the workforce to do the wrong things. Much of the irresponsible behavior in the banking industry can be attributed to the reality that the people committing the atrocities were encouraged to commit them and were richly rewarded for doing what they did.

 
An excerpt from: “Variable Compensation:Good Fit To Turbulent Environments”  Email rewardsystems@yahoo.com to request a copy of the full article.

Performance & Rewards Strategies for International Assignees

“If multinational firms are to prosper now and into the future, they must develop people who can successfully function in a global context – formulating and implementing strategies, inventing and utilizing technologies, and creating and coordinating information. International assignments are the single most powerful means for developing future global leaders.” –  Globalizing People Through International Assignments

This quote helps to explain why organizations are investing so heavily in effectively managing international assignees and in ensuring their international assignments are productive.

A successful international assignment can be defined as one in which the assignee performed well during the assignment, stayed for the full duration of the assignment, repatriated or was reassigned successfully into a role where what was learned on the assignment was utilized, did not subsequently terminate voluntarily and benefited from the assignment from a career perspective. Regrettably a small minority of assignments are viewed as successful if these criteria are used. A number of studies have suggested that more than two thirds of international assignees feel the assignment had a negative impact on their careers and a significant number leave their organizations shortly after returning from the assignment. Much of the difficulty with international assignments is caused by a lack of adequate preparation for dealing with cultural differences, spousal or family difficulties and poor repatriation planning. But failures have also been attributed to poor definition of performance expectations, poor performance management and remuneration issues.

Performance Expectations

The reasons for posting an employee to an international assignment vary widely, but they are most often:

  1. to set up new operations
  2. to solve operational problems
  3. to bring expertise lacking locally and to train local personnel to manage operations
  4. to develop the assignees so they can become part of a global cadre

The reasons for the assignment should certainly influence the selection of the assignee but they also should help to define the criteria that will be used to evaluate the performance of the assignee and to reward her or him. And it is critical to ensure that both the headquarter and local managements agree on the assignment objectives. Lack of aligned expectations can cause frustration and confusion for the assignee and can cause conflict between the sending and receiving parties.

Performance Management

Performance management systems must address the challenges associated with developing performance criteria, standards and processes that are effective and acceptable across cultures. Some of the issues include:

  1. who appraises the performance of the employee
  2. what criteria will be used to define and measure performance
  3. how the performance rating will impact the person’s compensation and career progression.

Some international assignees report to and are supervised by local management, while others are supervised by their headquarters manager. And some have a dual reporting relationship. When the local manager is involved it can present cross-cultural challenges, the magnitude of which will largely depend on how different the cultures of the two parties are. An employee’s effectiveness is bound to be impacted by factors such as the degree of cultural adjustment, the attitudes of those the employee works with and how well the employee’s capabilities are suited to the assignment. And these factors may be largely out of the employee’s control, which calls for consideration when appraising the results produced. The bottom line is that the criteria used to evaluate performance should reflect the nature of the assignment.

Rewards Management

Compensating international assignees is often treated as a highly technical issue and as being totally unique to this category of employee. Certainly there are legal, taxation and technical issues that must be adequately addressed but there are also principles that should be developed that will guide the remuneration strategies utilized for international assignments.

If an organization decides an assignee should have an “equivalent” package to others at the same level or performing similar jobs then it is reasonable to use balance sheet techniques to provide the assignee the same level of real income and purchasing power as those similarly situated and to ensure any special circumstances are considered. People leaving their families behind or going into dangerous situations may reasonably be compensated for making the sacrifice or taking the risk. Those going to locations where it is more costly to live in the same manner they are accustomed would expect to be given allowances that adjust for the additional cost. And economic considerations such as taxation rates and currency fluctuations should be addressed. There are numerous sources that deal with these technical issues. But it is important to know that “doing things right”can be different than “doing the right things.” 

Other Remuneration Issues

In addition to maintaining equitable and appropriate direct compensation packages for international assignees there are issues associated with indirect compensation (benefits). Depending on the country to which the person is assigned there may be great differences in the way benefits are handled. Benefit programs can be government provided, government mandated or voluntarily provided by the employer. International assignees are often desirous of not having temporary (albeit extended) stays in another country impact things like health care, retirement programs and participation in stock programs or other forms of long-term incentives.

Certainly the balance sheet approach to “making the assignee whole” can be used to accommodate any variations in taxation levels, currency rate exchange, mandated contributions to local country social programs or even time-off policies. But it is critical to understand the differences in advance, to determine their impact on the assignee and to reach a mutually acceptable way of adjusting for these factors.

Conclusion

International assignments are a natural byproduct of globalization. Trying to conduct all aspects of a business out of the headquarters country may not be feasible. And if operations are established in more than one country it may be necessary to send people across borders to ensure the right people are in the right place with the right skills.

How effectively and appropriately performance is defined, measured, managed and rewarded will have a major impact on the effectiveness of international assignees. Legal, economic, social, logistical and cultural differences between countries often make it necessary to locally customize performance and rewards management systems. But guiding principles should be established to ensure practices are consistent with each local context and with the values of the organization.

Developing A Sales Compensation Strategy

The first step in creating an effective sales compensation system is to develop a strategy that is derived from the objectives of the organization and its business strategy and that is a good fit to the context within which the organization operates. The importance of sales will depend on that context. A monopoly with no substitutes for its products may view sales as automatic and requiring no special effort. An organization selling a product that is a commodity, with many competitors, may view sales as its primary focus… its ticket to survival. How important sales are to an organization should determine the resources committed to generating sales and the amount of attention paid to how much and how salespeople are compensated.

Given these realities, it is necessary to define the context within which sales activities are performed and to formulate a “good fit” sales strategy. The context is defined by a number of considerations:

  • the nature of the product(s) the organization has to offer in the market: the economics associated with it; its competitiveness with others providing it; the existence of substitutes; brand recognition and strength; current market share
  • the nature of the customer: the needs and priorities of potential buyers; the image of the product with prospects; economic ability of prospects to afford it; value of the product to customers; existing customer loyalty; significance of product relative to customers’ total purchases
  • the nature of the sales process: typical timeframe; sales channels; role of various sales and support personnel in making the sale; points of contact in the organization
  • the nature of the labor market for sales personnel; how much and how competitive organizations pay; the supply of the needed knowledge/skills; the demand for critical knowledge/ skills; current and evolving competitive conditions in the industry

While all of these are important considerations understanding the role of sales personnel is perhaps the most critical. In some instances, the “sales representatives” serve as relationship builders and conveyors of product information (e.g., pharmaceutical reps calling on doctors). In other situations, the representative makes the sale (e.g., call center outbound sales personnel). With the advent of new technology many sales personnel never see the customer (e.g., outbound telemarketing reps), while others practically live with the customer over extended periods (e.g., reps selling enterprise-wide IT systems).

Given the wide range of variability in the role played by sales personnel it is typically folly to attempt to mimic what other organizations are doing with the sales plans. Certainly a program designer must be aware of the compensation levels offered by competitive organizations, to ensure the program will attract and retain the quality of personnel required for success. 95% of getting it right is by understanding the role played by sales personnel and the significance of that role. Once that is understood the organization can determine what would constitute the ideal package of behaviors and results expected of the sales personnel.

An excerpt from:Effective Sales Compensation Strategies & Programs. Email rewardsystems@yahoo.com to request a copy of the full article.

Adopting An Appropriate Competitive Posture

Once the market of choice is defined and the prevailing levels determined an organization must decide how it pays relative to that market.
Most organizations will define multiple markets, each selected for a specific skill set, occupation or category of employee. And the competitive posture may be different for different types of employees. It is common for an organization to identify core critical skills and to pay them more aggressively than other skills. There is rarely enough money to pay everyone aggressively, making it prudent to be selective in applying an “above market” posture.

If the organization decides to pay above market levels for specific skills the question is:

“by how much?”

Too often the stated posture is expressed in a way that is statistically unsound. When formulating a competitive posture relative to market it is necessary to understand both the economic and behavioral implications. Even paying at market average may be a challenge for an organization with a high labor component in its operating costs, particularly if it competes with capital-intensive organizations. A bank with 70% of its operating costs in workforce costs does not have the same latitude as an oil refinery, which typically has about 1% of its cost in pay and benefits. For jobs/skills that are transportable across the two organizations, such as administrative support jobs, the bank cannot expect to be able to compete based on compensation. So affordability is a major factor in deciding competitive posture.

Even if an organization can afford a premium posture relative to market it still must ask:

“is it worth it?”

If the extra cost does not increase the quality of the workforce it must be questioned. The related issue is whether employees will behave differently if they are paid somewhat above market. And if economics mandate paying above market for critical skills means the organization must pay other occupations below market the impact of that posture must be evaluated. If key people leave the savings may be illusory. Even if only a few leave the organization must analyze who does exit. If it is the best people than once again the “savings” may turn out to have such negative impact on workforce quality that it is a shortsighted strategy.

Paying “at market” seems to be a reasonable competitive posture. But pay must be defined, market must be defined and the posture must be defended. Organizations must devise a strategy that best fits its context and that is justifiable. Both the economic impact and the behavioral impact of the competitive posture must be evaluated and a balance achieved.

An excerpt from: Competitive Posture: Critical Element Of A Rewards Strategy
Email rewardsystems@yahoo.com to request a copy of the full article.