Winning the Talent War with Total Rewards
While I admit I am a bit biased as a Total Rewards (TR) Director at SAP, I don’t think there is a more important role or a function more critical to the success of an organization than what takes place within your Total Rewards department, regardless of how your organization might define Total Rewards.
Your CEO, Board of Directors, and Executive Leadership team undoubtedly work tirelessly to chart your organization’s business strategy and overall direction. However, they will not be able to move forward and execute if they are not also engaged and supportive of a TR strategy that aligns with high-level business goals. The reason is fairly straightforward: in today’s marketplace where consumers and an educated and talented workforce are in high demand and have significant bargaining power, employers can only hope to maintain a competitive edge by offering a unique and compelling employment value proposition.
Some organizations in the software industry seem to have adopted the compensation philosophy of paying whatever it takes to get people into their roles to grow at any cost (and in some instances growing unsustainably and unprofitably). In contrast, at SAP we are willing to pay a premium for top talent targeting above the middle of the market with our salary structure, which is reflected in numerous external salary surveys, but we are unwilling to overpay for talent. That necessarily means that we don’t land every top candidate, and that we sometimes watch as talent that we’ve invested significant training and development in walks out the door.
But here’s what we’ve come to learn as an organization: in the interconnected world of today where everything is shared and open, employees know what they are worth, and they know when they are poised to earn more than they should reasonably expect based upon the market for their talents and experience. So how do employers compete for talent in an age where they must inevitably look beyond compensation to avoid being locked in a profit-less arms race for top talent?
I’d like to offer 6 tips that will help your organization look beyond compensation to more fully embrace your other areas of Total Rewards in a UNIQUE and authentic way that will hopefully resonate with your workforce.
1) Understand Your Business Strategy
Ask yourself: how is your organization – or if you’re part of very large global organization, how is your division – competing in the marketplace? Research done by global consulting firm Towers Watson (HR Matters January 2014) suggests that getting the right Employee Value Proposition (EVP) is a critical linkage between business execution and business strategy. But before you can create that linkage, you need to first begin with understanding how your organization is going to compete and win.
Your business strategy needs to be so clear and obvious that just about anyone in your organization or division can articulate it, if asked. If your employees can’t explain how your organization is competing, and hopefully winning in the markets where you compete, you can’t possibly have a talent and TR strategy that aligns with it.
Another way of asking a very different but related question is whether your engaged employees value and appreciate your TR portfolio. A 2012 Total Rewards Survey by consulting firm Aon Hewitt found that 69% of top performing companies made Total Rewards an area of strategic focus for their company while just 42% of non-top performing companies said they made it a focus.
Just how might a TR strategy differ based upon your business strategy? You might choose to offer a different pay mix, promote more flexible working arrangement, offer more liberal time off, or emphasize a growing number of targeted benefits that will appeal to a particular segment of your workforce. Just what your own TR portfolio might look like is going depend upon what your business strategy is.
2) Network Ceaselessly
At SAP, we view our culture as a very large and diverse interconnected ecosystem. In order for our TR strategy to be effective it’s important that TR is connected to leaders throughout the organization and that the TR strategy is meaningful to them. What this means in practice is that while we focus on getting the right benefits and policies in place, and having the right internal and external partnerships in place to help us administer them, we spend as much time if not more time communicating the TR value proposition to managers and employees alike.
And let me be completely honest here, sometimes it can be really exhausting because not every employee is going to like every aspect of your TR portfolio and having that constant dialogue with your employees takes up a lot of time and energy. But if you aren’t networking internally and externally, you are liable to miss out on some really critical opportunities to learn and adopt to what’s going on around you.
Let me share a very recent example to illustrate my point here. This past Sunday afternoon I received an email from Dan Healy, a Senior HR Business Partner at SAP, about a new milk shipment benefit for working moms that elect to breast feed but also travel extensively for work. He received the email that morning from Dean Germeyer, our North America Head of Services Sales, who had just read about it in a Fortune article. By Monday I had already engaged some of my external TR contacts, and within 48 hours they provided me more detailed information on the benefit, which meant that by the end of the week I was already discussing the topic in a North America HR Leadership meeting. I can’t say for certain what we’ll ultimately end up doing in this particular instance, but I can say that things were able to move this quickly because of the strong and open business network at SAP and the role that TR and HR plays in it.
3) Invest in Total Rewards Programs First
Investing in your Total Rewards portfolio is extremely critical to your long-term success. If your organization doesn’t view your Human Capital as an asset that it needs to continually invest in, then you really need to start. Far too many organizations allocate just 2-3% to their salary budgets, allow their Finance team to determine how much of the benefits budget to cut or cost-shift to employees, and then call it a day. Then leadership often wonders why they can’t keep their top talent or find it so difficult to attract talent to their organization. The problem is that this approach was never really effective because putting a hammer to nail isn’t a solution when you’re left with crumbling drywall afterwards – in other words, employees have always been keenly aware of changes that management has made that left them worse off in some way, but somehow spun to seem like a positive. This bad approach to managing TR has always created a cynical and distrustful workforce.
Now in today’s hyper-competitive fight for talent, it’s even more apparent that this approach doesn’t work because skilled workers have more options than ever before. So what should a company’s approach be? A firm should begin with their investments in Total Rewards that are necessary to win and execute their business strategy. It needs to inform managers and employees of these investments, and then begin figuring out how to manage the far less important budget items to tie out to whatever bottom line the organization is trying to achieve.
4) Question Why You are Doing What You’re Doing
One of the biggest pitfalls that happens in the TR space within an organization is the tendency to continue to do what you’ve always been doing by offering the same benefits year after year. In some instances that may make sense because you view certain aspects of your TR portfolio as critical to your employee engagement. But it’s a good exercise to question your portfolio on a periodic basis. At SAP, we provide all our US based employees with very rich medical and prescription benefits, and we’ve always done so. But that didn’t stop us from introducing consumer directed health plans a few years ago when they were proven to be an effective way to make employees aware of the high cost of medical services in the US.
So while we introduced these plans just as most large employers have already done by now, we did it in a way that introduced consumer behavior to our employees while still offering a very rich benefit (low deductibles with low out of pocket maximums and generous seed money). My point is this: if we weren’t questioning why we were doing what we were doing at that time, we might never have made the improvements we made, which over time undoubtedly lowered our overall costs and enabled us to invest in other valuable benefits like telemedicine, healthcare advocacy, and our COPE program, a one of a kind gene mapping program that helps employees fight cancer.
5) Understand Your Markets for Talent and Differentiate
Michael Porter, one of the great minds in business strategy, emphasized differentiated products and services as a key to business success. Similarly, differentiating your TR portfolio to attract the talent that your organization needs to achieve its business objectives is just as crucial to success. What are some ideas beyond competitive compensation and core benefits offerings? Well, if you oversee a predominantly male, rural workforce at a manufacturing plant that is passionate about the outdoors, you might want to get creative with working hours during hunting and fishing season to encourage employees to enjoy what they are passionate about.
Or let’s suppose that your organization has just expanded its research facility and you’re aggressively recruiting veterans with advanced technical training into your workforce. Veterans are accustomed to traveling and working anywhere in the world, so why should they come work for your organization? Does your organization even have Veterans Day off, or do anything unique if you’re like the 60% or more of organizations that are open for business that day? The chances are probably not. What would it mean to the veteran talent you’re recruiting if you added an additional day off, or if you had your HR staff organize some phenomenal and well-funded event in the office, and then maybe even let your veterans out early that day?
Here’s my point with these two illustrations: your TR portfolio beyond compensation and traditional benefits doesn’t need to dramatically add costs to your bottom line, but it should resonate with your organization’s talent pool and it should differentiate you from your competitors. And in doing so, it should enforce the cultural DNA of your organization that leads to its success.
6) Managers with Flexible Frameworks
There’s a challenge for organizations that span an entire large country like the US—and larger companies with a global footprint like SAP—to attempt to manage an entire portfolio of benefits from a central location, or otherwise install a rigid framework that all regions must follow. Having a framework for your TR portfolio is fine, but it needs to be flexible and adaptable enough so that regional management is empowered to address the unique needs of employees in a given region. If it’s not, your TR portfolio is not going to resonate with your employees. Just as consumer brands need to be customized to local markets, so must your TR portfolio. Otherwise you’ll likely miss the mark with your target audience: current and prospective employees. Your company can’t afford it.
A Few Last Words
The challenge facing every organization today is how to best attract and retain a talented workforce to deliver exceptional value to customers. It’s no longer the case where employees just want competitive compensation, so leaders have to look more holistically at the total rewards framework. Employees want unique and differentiated benefits, the opportunity to grow and develop their careers, rewards and recognition for their hard work, and adequate work-life balance. They also want to work for companies that care about the world around them and about the employees themselves. These areas of focus are at the heart of what TR professionals spend their time and energy on, and they’ve become enormous differentiators in the marketplace today. The firms that best align them in unique and authentic ways will not only attract the best and brightest minds in the marketplace, but they’ll come to dominate their industries over time. The only question is whether your firm will be one of them.
To learn more about how total rewards can give you a competitive edge and enable success at your company, check out the latest assets from SAP SuccessFactors on the newly launched Total Compensation Management Digital Hub. From leading analyst reports and white papers to customer success stories and on-demand webinars, you’ll find plenty of information to help you navigate the complex world of compensation.