Total reward is more than just rands and cents

For a long time in South Africa, guaranteed pay was king. Recent studies, however, have shown that once an employee has chosen an employer, reward practices such as career development and talent management have overtaken pay, writes Craig Raath…

The need for organisations to adopt a purposeful attraction and retention strategy is driven by the changing marketplace in South Africa, and it is imperative for organisations to introduce effective staff attraction, retention and engagement tactics to remain competitive.

Market indicators suggest that the cost to an organisation of losing a valued staff member is probably between 50 and 100% of the person’s annual wage, usually the result of both direct and indirect costs of unplanned employee turnover. (Direct costs include recruitment, training new people and the cost of mistakes they make before settling in. Indirect costs include reduced performance, the effect of increased stress, and reduced job satisfaction.)

It’s time to look beyond cash for alternative retention strategies

Retention is no longer driven solely by money, and this should not be the only issue on which an organisation focuses in the quest to become an employer of choice.

A retention policy that is deemed effective speaks to a number of areas and phases in the employer / employee interface. These include, but are not restricted to:

  •  Recruitment – Matching skills is relatively easy. Ensuring that the individual is the right cultural fit for the organisation can be more demanding.
  •  Skills sets – As businesses become more knowledge and service orientated, the up-skilling of employees becomes critical to sustaining this trajectory. As such, a greater focus is being given to career pathing, talent management, and knowledge-sharing strategies.
  •  Employees as assets – While many companies profess that this is their mantra, it is immediately apparent to sophisticated employees when they are treated as “costs”. More organisations are realising that engaged employees provide them with the vital competitive edge needed to outperform their competitors.

Ensuring that talented employees remain in the organisation is the final step in the process. While the above strategies are focused on the emotional side of the job, the practical elements of the job remain equally important. Remuneration is one such consideration, as it remains one of the most definitive security factors associated with the job. Remuneration therefore needs to remain reasonable and in line with market norms, while being suitably linked to performance.

Attraction and retention of top talent is the number one business challenge facing employers today, with equitable remuneration, performance measurement, tying rewards to desired performance and determining the right benchmarks being among the pertinent issues.

Organisations are beginning to appreciate the value of being proactive, creative, and even experimental in exploring solutions to their retention challenges. This realisation has seen the emergence of a whole range of attempts to entice employees to stay.

The popular saying “employees join companies, and leave bosses” holds true in many cases. The best spend may well be on the training and development of bosses to be better and more inspiring leaders. It is critical to remember that the retention of key staff cannot be guaranteed by an increase in remuneration levels, and should rather be approached by adopting a multi-pronged attraction, retention and engagement philosophies.

The most effective way to inform this philosophy is to engage the employees. It is crucial in the formulation of any attraction-and-retention strategy that employee perceptions, opinions and needs are taken into account and reflected in the strategy. The thinking behind this type of strategy is that different generations, cultures or genders want different things from an employment relationship. Profile fit-reward strategies are therefore becoming more popular in engaging employees.

Although these ideas are crucial in any successful employee value proposition, if pay is viewed as a dissatisfier, there is very little an organisation can do to attract the requisite talent or retain its key skills. Remuneration options therefore still need to be considered, and the number of organisations implementing specially-designed remuneration-retention mechanisms is increasing as skilled employees are becoming increasingly mobile, both across industries within South Africa and globally. It should not, however, be the only focus when crafting a compelling value proposition to employees.

For many years, reward meant getting paid a salary plus benefits merely for arriving at work, and perhaps a bonus, either guaranteed or performance based. This was usually set using a sizing methodology or job evaluation system. Over the years, organisations have used remuneration to gain a competitive advantage by using the different remuneration elements to drive certain behaviours. More importantly, performers can be defensibly differentiated from non-performers (performance-related pay (PRP)). The result is that the onerous salary and wage bill is tied to the fortunes of the company. More recently, employers have been looking beyond the rands and cents for other ways to attract, retain, motivate, and ultimately engage employees.

Recent research has shown that in terms of attraction, pay is still the number one consideration. However, pay is less significant when it comes to retaining and motivating employees. As long as pay is not a dissatisfier, organisations should look at other reward elements to ensure that they are competitively placed in the war for talent – the entire employee value proposition is key.

What is an Employee Value Proposition (EVP)?

A company’s EVP can be defined as “the unique set of attributes and benefits that will motivate targeted candidates to join a company and current ones to stay”. The measureable benefits for a company of a well-designed and -executed EVP include:

  • Being able to source candidates from a deeper pool in the labour market
  • Having committed employees who perform better and don’t leave
  • Attracting new employees without having to pay remuneration premiums.

In other words, you can develop a statement of why the total work experience in your organisation is superior to that elsewhere. The value proposition identifies  the unique people policies, processes and programmes that demonstrate your organisation’s commitment to employee growth, leadership development, ongoing employee recognition, performance management, and remuneration. Contained within the value proposition are the central reasons why people choose to commit themselves to an organisation. So while pay is definitely part of the mix, it is the effectiveness of all the following processes that impacts on a company’s EVP and its ability to attract and retain talent:

  • Remuneration: Market-related salaries, benefits, short- and long-term incentives, structure, flexibility, the link between pay and performance.
  • Performance management: Alignment between individual goals and company strategy, ongoing management of individual performance, the performance appraisal process, making development the core of performance management, inclusion of values and competencies into the performance management process.
  • Talent management: Linking talent planning to business strategy, leadership and manager development, succession planning, competency assessment, and gap analysis.
  • Rewards and recognition: Use of financial and non-financial rewards to recognise and motivate employees.
  • Recruitment: Processes for identifying targeted candidates, communicating the EVP to current and potential employees, turning employees into advocates, and managing the recruitment process in terms of cost and speed.

The pillars that make up a compelling employee value proposition may vary from organisation to organisation and sector to sector. What differentiates the top companies from the rest is the extent to which organisations live their propositions – and more importantly, drive them from executive level down. There is abundant research in the market linking ROI to employee engagement, and the drivers of that engagement to business processes. This makes up a value proposition that clearly benefits the organisation. The illustration below is an example of what an employee value proposition could look like in an organisation.

On a macro level (with the inception of the King 3 corporate governance guidelines), organisations are being urged not only to reflect financial and business specific strategies in their corporate goal setting processes but also to include sustainability measures. This ensures that profitability and business growth are not being seen in isolation – organisations are being urged to achieve these measures in conjunction with broader environmental and social responsibility goals.

Once an employee has chosen an employer, it is critical to ensure that the employee forms a strong psychological connection to organisational culture, values and strategic direction. This is achieved by getting the balance right between all of the reward practices underpinning the employee value proposition. If organisations get this right, it will result in an increase in discretionary effort and ultimately in workforces which act as advocates for the organisation.

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by Craig Raath, Executive Director, 21st Century Pay Solutions Group

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