Wednesday, March 14, 2012

Maximizing Your Rewards ROI

In the spirit of Scrooge this holiday season, today we're going to take a look at how to maximize your return on a limited rewards budget.

Organizations allocate money toward employee rewards because they want to see a return on investment in terms of motivation, retention, performance and ultimately, a positive customer experience.  But not all organizations have a plan for how the money should be allocated to create the most value.

People create business value with their skills, process knowledge and quality of work.  HR is tasked with designing HR levers that will build competence and process knowledge while improving work quality and customer experience.  Compensation and rewards are HR levers organizations use to achieve this.

Do you know how people create value in your organization and which people create the most value?  You need to understand this in order to maximize your return on investment.

There are all kinds of tools to do this but the simplest way is to think about your workforce in terms of two things: performance variability and impact on customer experience.

Customer experience is ultimately where business value is created in most organizations, which means you'll get the highest return on investment by applying rewards where they'll have the most impact on customer experience.  Applying rewards to roles that have little performance variation or direct impact on the customer will create less business value.

*Note that if your company's business value is created by something other than customer experience, you can use that instead to identify roles in the organization that add the most value.

Now, here's the tricky part: You aren't choosing between people who deserve to be rewarded and people who don't because there are a lot of deserving people out there.  Nor are you choosing between people who impact customer experience and people who don't because everyone in the organization has some impact on customer experience.

Instead, you're applying a limited budget to the areas of the organization where rewarding performance can have the maximum impact on the customer experience, because that's ultimately where business value is created.  For example, it might look something like this at an IT company:

Impact axis

Any compensation professionals that work with a salary matrix or a 9-box to pay for performance are hopefully having an ah-hah moment now because it's basically the same principle - spend the money where it'll have the most impact.

If we want to take this a step further, we can look at how effective different types of rewards are at encouraging desired behaviors within a particular talent pool in order to determine the optimum level and type of reward.  For example, offering a bonus to a customer support professional for number of customer cases closed may have a positive impact on speed but a negative impact on quality of outcome.

There are no right or wrong answers but there are answers that create more and less business value.  So, before allocating that budget next year, take a closer look how value is created in your company and by whom, then ask yourself how different kinds of rewards impact the outcomes you want to incent.

Talent alignment matrix courtesy of Cornell University.

Laura Schroeder is a global talent specialist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience envisioning, designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing (well, kicking things) and spending time with friends and family.

Thanks to Laura Schroeder / Compensation Café


No comments: