Recalibrating Best Practice

What do CEOs think of reward practices and the professionals responsible for their design and implementation? Where do “strategy” and “best practice” fit with the belief systems of organizational leaders? Our studies, based on hundreds of interviews, show that business leaders are singularly interested in the return on investment value obtained from total rewards expenditures. (Many of our studies’ results are available in WorldatWork articles.) When we talked with them about best practice, they universally believe this concept totally reflects how best their own organization can link talent with its specific business goals. Company leaders clearly view what total rewards cost the organization as an investment in the talent the organization needs to prosper.

The bone CEOs have to pick with total rewards professionals is that HR in their experience defines “best practice” as meaning prevailing or competitive practice, and this assumes that organizations that copy the practices of others are doing the right thing. One CEO represents this consensus with the following comment:

We are most interested in adopting reward programs and practices that closely link our people to the goals and objectives of our own organization and customers. What other organizations do is somewhat interesting, but merely following prevailing practice does not accelerate business achievement—customization to our business needs does that.

CEOs in our studies often asked,

Why do we need to pay everyone competitively? Why would we not want to focus only on the top 30% or so of the most skilled and high performers in our companies because these people add most to our bottom line?

It is clearly a strategy focused on gaining a return on investment relative to talent and organizational business goals.

The responsibility for addressing the problems CEOs are having with best practice rests with those in the total rewards profession. Over the years, we have often ignored gaining the knowledge needed to provide advice concerning how best to match total rewards designs with business needs and instead focused on a skill that is easy to learn and apply: following prevailing or competitive practice and calling it best practice. The consultants who sell surveys of what others do have facilitated this problem by marketing competitive practice as best practice.

Consulting firms that provide compensation surveys have done this not only to sell survey participation and survey purchase but also to be able to hire consultants who can advise clients on following the practices of others but lack the skill and capability to provide strategic advice on how best to match reward design to the needs of an organization that must generate successful financial performance and make itself attractive to high-performing talent. While it is easy to advise clients to follow me-too total rewards practice, it is much more difficult to advise them on how best to design a reward program focused on maximizing performance results of talent that makes the business a success—that requires heavy lifting. And this capability gap is what has led our profession down the fruitless path to work-life benefits. It is much easier to give things away than to make rewards contingent on adding value to the business. But business value is what CEOs want, and a day of reckoning may be at hand.

After many years of struggle, Human Resource Information System (HRIS) designers and marketers have begun to make significant improvements to the products they sell. And as a result, more organizations are purchasing these systems and assigning many of the tasks that total rewards professionals have performed for years to these systems. What passes for strategic total rewards thinking is so predictable that an HRIS can do it now as well as can the total rewards professionals historically assigned the responsibility. So while CEOs in our study had serious questions about many issues related to HRIS, unless the total rewards profession can provide evidence that we are doing more than copying the practices of survey organizations and focusing on competitive practice, leaving what has become known as best practice to a computer system seems a good alternative to consider.

What’s the action for our profession? Listen closer to what our CEOs are saying and less to what those who sell surveys are telling us about the importance of paying competitively or following the practices of other organizations. Research indicates that certain total rewards solutions such as variable pay for performance and base pay for acquiring and applying needed skills add value to the business. We have no evidence to suggest that programs such as pet insurance and working at home add anything to the business success of our organizations. Now that CEOs realize this and are objecting to follow-the-latest-leader total rewards planning, it is going to be more important to provide advice and effort that reflect the organization’s business needs. We certainly can do this, but it will require some major change in vision, skill development and attitude on our part.

And where will development and training come from in the next decade? It is definitely not going to take much education for professionals to play “follow the latest leader tag” and call it “best practice.” Matching the design of rewards to the business needs of an organization is quite a different matter. It means a solid link between the business and human sides of enterprise so what makes sense for the talent organizations needs also makes sense to their bottom line. Perhaps it is training in colleges and universities that step forward, and maybe our professional organizations. Our CEOs are clearly giving us a signal about how what they think is best practice is different from what we think it is and this understanding gap will be filled in some fashion. How and who will fill it seems uncertain right now.

So what might be the “teachings” from asking CEOs to help define “best practice”? Clearly some ideas come into play:

Business First: CEOs want talent to be focused on making the organization a success and subsequently sharing in that success. This means we need to be fully aware of how business success is measured in the organization and use this understanding as the foundation of reward strategy and practice.

Skill and Competency Matters: CEOs believe that some people are more valuable to the organization than others. And they make this judgment based on how close the skill and competency of talent matches the required skill and competency of the business. For us, we need to focus more on the person’s value and not merely the job’s value. Time is ripe for agile workforces that grow and learn. Paying for skill and competency does this.

Look to Research Evidence: Reward practices such as incentives and variable pay based on business metrics have proven to add to the return on investment from rewards. Sticking close to what really works makes sense. Although they are popular and “easy to like,” programs such as working at home, “lunch with the boss,” and pet insurance just have no support other than from organizations that sell and market these programs