This article has been adapted from a presentation delivered by Steve Gross and Paul O’Malley at the WorldatWork Total Rewards Conferences in the US and Europe in 2006.

There is no doubt about it. Creating and executing a globally consistent approach to total rewards isn’t easy given the many nuances that must be considered at the country, business unit, functional and even the employee level. (See examples of complexities and misperceptions in designing total rewards programs.) But with the right tools and understanding, organizations can go beyond benchmarking and best practices to develop a unique rewards strategy that fits their organization and fulfills their business objectives.

In this article we will explore a few ways that successful companies create total rewards strategies that increase employee “engagement” and create a performance-based culture with fewer resources.

What do we mean by a total rewards strategy?

Total rewards integrates three competing perspectives to best support the business strategy:

• What the employer needs in terms of skills and behaviors to run the business
• What reward elements employees value
• What the company can afford to spend and sustain over time

Developing a global total rewards strategy

As with any strategic initiative, there is no one-size-fits-all solution. Instead, organizations must go beyond benchmarking and best practices to develop unique rewards strategies that fit their organization and address the needs of their different stakeholders – the employer, the employee and the shareholder.

1. The employer perspective

The employer seeks to enhance the company’s ability to attract and retain a workforce that has the knowledge, competencies and behaviors necessary for business success. This requires a company to concretely relate its workforce needs to its business strategy. By understanding the company’s value proposition and customer preferences – why customers buy from it and not from others – a company can determine which employees with which capabilities and behaviors are most responsible for results. HR can then develop a total rewards strategy that flows, in part, from this workforce segmentation and reward top performers accordingly.

2. The employee perspective

Employees seek rewards that are part of a compelling value proposition they understand and support. After all, if employees don’t perceive rewards as valuable and important, then rewards do not have the motivational impact intended. For example, while incentive pay is valued by many employers as a means of reducing fixed costs and improving performance, a 2005 Mercer survey of employees around the world found that incentive pay is not a strong motivator for them. This suggests that companies moving to a variable pay program should create a high enough upside potential to ensure that the value proposition is motivating.

Of course, the employee perspective is not that easy to define because different generations and cultures often value rewards elements quite differently. For example, the study cited above also found that the motivational importance of long-term career potential varied greatly from country to country. This suggests that companies should examine their employee population and the local customs to determine how best to segment their employee groups to tailor an effective total rewards strategy.

3. The shareholder perspective

Shareholders seek rewards costs that are affordable and sustainable and do not crowd out other profitable investments. One way to analyze this issue is to look at the ratio of rewards costs to revenue, not just today but in the foreseeable future – particularly because margins on well-established products and services tend to erode over time. Organizations need to ensure that pay rates and levels are both sustainable and balanced with productivity and results.

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Segmentation to help focus on priorities

Multinational companies and global conglomerates face added complexity when considering these three perspectives. A disciplined practice of segmenting the workforce can help leverage the total rewards investment more effectively across geographies and business units.

Workforce segmentation allows employers to differentiate pay to reflect the value that different employee groups create for the organization. The workforce segments are based on distinct factors such as the business life cycle (defining skills and behaviors required at different stages of growth or decline), business design (determining the impact of an organization’s target markets and how it makes money), geography (identifying global consistency versus local focus) and brand impact (assessing an employer’s desirability).

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A powerful management tool

A comprehensive total rewards strategy, using a workforce segmentation approach, is a powerful management tool because it helps to articulate priorities, establish quantifiable rewards objectives across geographies and build a business case for change. When done well, it specifies per segment: The role and design parameters of each component in the rewards plan Specific recommendations for increases or reductions in rewards investments A prioritized action plan for change Metrics for assessing success over time Requirements for effective communication and administration.

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Global total rewards misperceptions

Multinational companies and global conglomerates face added complexity in designing a total rewards strategy. In addition to integrating the perspectives of employer, employee and shareholder, they have regional versus global and business unit versus corporate considerations to balance. And their jobs can be made more complicated by misperceptions that circulate in the marketplace.

Here are some of today’s common misperceptions:

• The total rewards strategy has kept pace with the business strategy.
• The perceived value of pay, benefits and careers stays constant over time.
• Incentive compensation is more effective in mature economies.
• Above-average pay retains high-potential and high performers.
• Retention is due more to current rewards than future opportunities.
• Retirement benefits should always be offered in highgrowth economies.
• Africa will be the next great economic development zone.
• India will be the hub of manufacturing by 2010.

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