Rewarding the Performers - 1 Dec 2008

Reward programs are powerful tools in creating and keeping talent, but
an exclusive recalibration of Fortune magazine's "Most Admired
Companies" list shows total rewards isn't all about money.

By Paul Gallagher

 

Most companies know
that an engaged employee means money in the bank for the employer. But
after an employment deal is clinched, after an employee's pay is bumped
and after "atta boys" are doled out to the high-performers, not every
company succeeds in attracting, retaining or developing its greatest
asset -- its talent.

What differentiates the admirable employer from the merely adequate?

New research from
Philadelphia-based Hay Group,the global management consulting firm, and
interviews with top HR executives at some of America's most successful
multinational companies indicate that alignment, communication -- and a
dash of cachet -- may separate the most respected companies in HR from
the also-rans.

For the fourth year,
Hay Group has recalibrated its "Most Admired" companies list for
Fortune magazine to create the exclusive "Most Admired for HR" list for
Human Resource Executive^® magazine. The latter
HR-focused list is derived from key data within the "Most Admired"
list, recompiled with a focus on what Hay terms "attributes of
reputation." (
See chart
.)

To create the "Most Admired Companies" rankings for Fortune,
Hay Group surveyed more than 3,700 executives, directors and analysts
to rate companies in their own industry on eight criteria. Half of
those criteria which could serve to describe essential HR functions --
Management Quality, Product/Service Quality, Innovation and People
Management -- were then pulled and recompiled to create this magazine's
"Most Admired for HR" list. (See sidebar,
The Numbers Game
.)

Among the findings:
Companies that rank among the "Most Admired for HR" tend to concentrate
on developing talent from within and provide a clear line of sight for
promising talent in the organization. They also offer clear
communication on total rewards throughout the organization, from
senior-level management to the rank-and-file employee.

By and large, "Most
Admired for HR" companies also lean toward paying lower base salaries
for management and professional employees -- about 5 percent lower than
average, according to Hay's Mark Royal.

"It's a striking finding," says Royal, a senior consultant in Hay's Chicago office.

It would be easy to
conclude that successful companies owe some of their admiration and
employee loyalty to the almighty dollar, but Royal says the research
points elsewhere. By emphasizing talent development from within,
through mentoring, coaching and "actively managing the careers of
employees and leaders at all levels," he says, companies are able to
avoid paying salary premiums to import talent.

Some companies, such
as farm equipment manufacturer John Deere & Co. of Moline, Ill.,
count on an army of nearly 500 internal career coaches, about 80 to 100
of whom are active at any given time. Anheuser-Busch has created what
James Brickey, head of HR and total rewards for the St. Louis-based
brewer, calls "a formidable succession-planning program."

While human resource
executives interviewed for this story stress that they pay competitive
base salaries, they also depend on an arsenal of intangible benefits,
such as development programs and the star power that reputation and
brand quality can create. The goal is the same: Keep employees engaged
and keep them focused on a long-term relationship.

At "Most Admired for
HR" companies, workers who do add value over time tend to be rewarded
with more bonus and financial incentives, according to Royal.

"There's the message
. . . that, 'If you're with us for the long term, moving up to the
senior levels or contributing to our growth, you're going to see some
very tangible compensation benefits,' " says Royal.

 

Sowing Rewards for Teamwork

That's certainly the
message that Deere cultivates, according to Mertroe B. Hornbuckle, vice
president of human services. Ranked 14th among the "Most Admired for
HR," Deere has a global workforce totaling around 56,000 -- about
30,000 of whom are located in Brazil, Russia, India, China, Mexico and
Canada. Hornbuckle says Deere has created a three-pronged strategy that
hinges on a combination of short-term cash incentives, "profitable
shareholder value-added" and "aligned high-performance teamwork."

Since his ascent to
CEO of the 171-year-old company in 2000, Bob Lane has emphasized the
importance of creating shareholder value to align the workforce and
grow the organization's bottom line.

In essence, the
concept entails charging each division 1 percent each month of the
company's assets they use. The goal, says Hornbuckle, is to achieve a 7
percent gain of SVA at the end of the year, so the division's profits
must exceed those charges.

The short-term cash
incentive program is based on SVA gains over the business year, and
every employee is eligible to benefit from the plan.

For junior-level
management up to senior managers, a mid-term incentive plan adds to the
SVA plan a four-year cash incentive program. Describing it as a
modified economic value-added plan, Hornbuckle says benefits are
delivered based on market performance, similar to the short-term SVA.

The combination of
short-term and four-year, cumulative incentive programs "have been
great global business drivers" and have aligned employees to Deere's
growth strategy, says Hornbuckle.

For top management --
Hornbuckle estimates around 600 employees fill these ranks -- a
stock-option program serves as a long-term incentive. The top 25
employees can also participate in a restricted stock-option program.

But the current
economic climate may put a damper on the tangible compensation
benefits, says Royal. In a spot survey, taken "several months before
the economic meltdown," he says, 31 percent of the 1,000 organizations
surveyed -- including 248 U.S.-based companies -- indicated that they
are either freezing or considering freezing salaries.

"I think it's going to put more emphasis on organizations to think more broadly about what constitutes rewards," says Royal.

Again, many of the
"Most Admired for HR" companies seem to understand the value of
communicating intangible benefits, such as talent development, and even
the strength of their brand.

At 11th-ranked
Anheuser-Busch, Brickey says, emphasizing the brand and the heritage of
America's first national brewery is a key part of talent development
and retention.

"That's something
that's very hard to place a monetary value on, but it's something that
I think we leverage as well as anybody," he says.

 

Trading on Heritage

As America's largest
brewery, with a nearly 50 percent market share of beer sales,
Anheuser-Busch enjoys an almost legendary status, thanks to its
156-year history and a marketing powerhouse that has churned out such
notable icons as the Budweiser Clydesdale horses, stick-to-the-psyche
jingles and catchphrases -- and those annoying, but effective, frogs.

Anheuser-Busch is
readying for its $52 billion sale to Belgium-based brewer InBev. While
both companies say they expect the sale to be finalized before the year
is out, the credit crisis may delay those plans.

Despite cultural
differences between the two multinational super brewers, Brickey says
he's upbeat that rewards and recognition programs won't be sacrificed,
and neither will reliance on the Anheuser-Busch heritage and tradition.

"Although we don't
know what the design of our programs [will] look like, those attributes
are something that I think both companies will really leverage in a
very effective manner," he says.

From the monetary
perspective, Brickey says, Anheuser-Busch's compensation programs are
straightforward, mixing base salary with a variable short-term bonus
plan and long-term stock options. As recently as a few years ago, he
says, the long-term plan was limited to stock options, but the company
has diversified the rewards to include restricted stock and additional
performance requirements.

Traditionally,
Brickey says, the compensatory rewards have been entirely
discretionary, but that subjective mechanism is changing. "We've
changed the mix," he says. "Not the overall dollars we deliver, but
having a more objective base. The goal there was to have a more aligned
tie with company performance and not so much with individual
performance."

For those employees
who are not eligible to receive pay-for-performance bonuses,
Anheuser-Busch provides additional days off, restaurant dinners and
spot cash-award bonuses from managers, who draw from a pool of money
allotted to the managers by the company. If managers distribute the
money across the board to the employees, Brickey says "it's not
impactful," but it does have clout when managers distribute it to one
or two individuals.

"Employees are very
well educated on it," says Brickey. "They know what they can do to
receive those dollars, and then it's just a matter of ensuring that
[the reward] is closely aligned with the action."

Blending rewards with
succession planning, Anheuser-Busch depends on leadership and
management councils to not only develop talent, but also drive
engagement of promising employees. The two councils -- the Leadership
Development Council and the Management Development Panel -- are
two-year assignments, made up of promising middle managers.

"Those are great retention vehicles, but are also seen as rewards for doing a good job," says Brickey.

While he says the
talent pipeline is full, he hedges a bit when he considers whether
Anheuser-Busch could be considered a talent magnet.

"I would say it's
been cyclical for us," he says. "We used to joke around here that we'd
close the employment doors at 5 o'clock and we'd have [job seekers']
arms and legs sticking out." During the dot-com boom, however, the
House of Bud wasn't particularly attractive to young talent, he says.

Those fortunes have
changed again, thanks to HR's marriage to the company's marketing
department for college recruitment fairs, and the sheer visibility of
the brand.

"If we don't leverage
that key strategic advantage for this company, it's a real missed
opportunity," says Brickey. "We pay well, we have rich benefits and we
do a good job of articulating those benefits to our employees. Other
companies do that, too."

But other companies,
he says, don't have the name brand or the tradition of Anheuser-Busch,
and a retention rate that Brickey puts at 96 percent of full-time
salaried employees.

 

Hitch a Wagon to a Star

Hay Group's Royal
says another trait "Most Admired for HR" companies share is brand
power, which helps to attract and retain talent. In short, everyone
loves a winner, and being associated with a winner can be its own
reward.

"Most Admired
companies benefit from a sort of virtuous cycle when it comes to
attracting talent," says Royal. "They enjoy strong reputations and that
helps them draw more than their fair share of the best and brightest
people."

Like others
interviewed for this story, Fortune Brands relies on intoxicating brand
power to attract and retain talent. Placing No. 1 on the "Most Admired
for HR," Fortune Brands is a holding company, headquartered in
Deerfield, Ill., with business units boasting such names as Jim Beam
and Maker's Mark bourbons, Titleist and FootJoy golf accessories, and
home hardware brands such as Moen.

Rosalyn D. Wesley,
director of human resources at the corporate office, says each of the
operating companies that make up Fortune Brands has its own HR
department, though she does work with the departments in such areas as
performance management and diversity initiatives.

Attracting and
keeping talent, says Wesley, is not a problem; she estimates turnover
in the "low single digits" at every level, from entry level to the
executive ranks. It's not exactly the pay that's bringing in the
talent, although Wesley says the company offers a competitive salary
and does have pay-for-performance compensation plans and other bonus
plans.

"And, by the way,
you're getting a company that's No. 1 and No. 2" in all of the
industries represented by the company, she says. "And, let's face it, I
think people want to be with a winner."

At the executive
level, in addition to annual bonus targets, employees can participate
in a long-term incentive plan as well as a company stock-option
program. The various operating companies determine their own
pay-for-performance rewards for their executives and non-executives
alike, and include annual merit increases and other bonus programs,
including stock-option grants.

Although there are
some standards in employee rewards, Wesley says "there's no
one-size-fits-all" formula. Each of the operating businesses has a
certain amount of latitude to tailor their rewards to fit their
demographic.

Florence Pramberger,
senior vice president of HR for Beam Global Spirits & Wine Inc.,
one of the Fortune Brands companies, says HR departments do intersect,
at times,

more...http://www.hreonline.com/HRE/story.jsp?storyId=150244573