Reevaluate your compensation and rewards to create a performance culture
Many companies are changing how they pay to keep the people they need. People who want to remain on a fast career track need to monitor what is happening to pay and rewards. Companies no longer just use options to get and keep the best people. And, when they move to cash compensation, this creates tax problems for key people.
- Options underwater? Don’t hold your breath for re-pricing options. But companies are making major option grants to key people. You may not get options on your company stock at the current price for a long time. So, if you are up for pay negotiations, it may be a time for more options.
- 2020 incentives sparse? Many incentive plans are based on earnings growth for their dollars. And some companies missed their goals near the end of 2020. It is time to look at the measures your incentive plan has for 2021. Do they start where the missed 2020 goals left off? Do you have financial goals that are realistic and based on what your company can do in 2021?
- Base pay adjustments? This will probably be a 4 percent budget year for most companies. So you need to focus on variable pay in the form of incentives and stock options. Companies set their plans at the start of the year, and even if things get better, they don’t change their budgeting processes easily.
Paying Smart: Time of Transition
This year will be a watershed year for pay and rewards. The game is changing fast. Leaders will have some critical decisions to make, as companies are transitioning from a period of economic growth to a time of uncertainty. In recent years, everything we did with pay and rewards seemed to work. Now companies need a powerful business case for everything they do. Pay and rewards must add value to the business—good news for a change. But people need to be agile and adaptable.
Hiring is changing—from recruitment that placed a premium on all skills to a situation where hiring is more selective. Companies should build a performance culture employment model. Rather than designing rewards to attract and keep everyone, now they need rewards that are attractive to people who add value. As businesses offer incentives and equity lower in the workforce ranks, it is important to link rewards to what drives growth. Use rewards as the engine to make the company grow again. We now know that stock options are not the “secret sauce” of financial rewards. This gives us a chance to restart equity-sharing strategies.
You need to know how to deal with a workforce that is more “pay and reward savvy.” We will now see a return to basic design elements, including workforce involvement, alignment with business metrics, win-win for company and people, and simplicity.
Companies need pay and reward solutions that are more cost justified and based on contribution to the business. Talented people work for more than pay: total rewards in the form of providing a compelling and attractive future; individual growth so people continue to add value and adapt as they grow in economic value; a positive workplace where people want to do well; and total pay comprised of base pay, incentives, recognition, celebration and benefits.