The world at work handbook of compensation benefits pdf

The WorldatWork Handbook of Compensation, Benefi ts

& Total Rewards

A Comprehensive Guide for HR Professionals

WorldatWork ®

John Wiley & Sons, Inc.

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The WorldatWork Handbook of Compensation, Benefi ts

& Total Rewards

A Comprehensive Guide for HR Professionals

WorldatWork ®

John Wiley & Sons, Inc.

This book is printed on acid-free paper. A

Copyright © 2007 by WorldatWork. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

The WorldatWork handbook of compensation, benefi ts & total rewards: a comprehensive guide for HR professionals/WorldatWork. p. cm. ISBN 978-0-470-08580-6 (cloth : alk. paper) 1. Compensation management—Handbook, manuals, etc. I. WorldatWork (Organization) HF5549.5.C67W65 2007 658.3'2—dc22 2007002715

Printed in the United States of America.

10 9 8 7 6 5 4 3 2 1

www.wiley.com
iii

Contents

Introduction: Redefi ning Employee Rewards Anne C. Ruddy, CCP, CPCU, President, WorldatWork xx

About the Author xxii

1. Total Rewards: Everything That Employees Value in the Employment Relationship 1

• Broadening the Defi nition of Total Rewards 2 • Evolution of the WorldatWork Total Rewards Model 5 • Exploring the Key Areas 6

– Compensation 12 – Benefi ts 12 – Work-life 13 – Performance and Recognition 13 – Development and Career Opportunities 13

2. Why the Total Rewards Approach Works 14

• The Top Five Advantages of a Total Rewards Approach 15 – 1. Increased Flexibility 15 – 2. Improved Recruitment and Retention 16 – 3. Reduced Labor Costs/Cost of Turnover 16 – 4. Heightened Visibility in a Tight Labor Market 16 – 5. Enhanced Profi tability 17

3. Developing a Total Rewards Strategy 18

• The Total Rewards Blueprint 18 • Five Common Ways a Total Rewards Strategy Can Go Astray 19 • Crystallizing the Spirit of Your Total Rewards Plan 20 • Issues That a Total Rewards Strategy Should Address 24

– 1. Clear, Compelling Strategies Help People Make Good Decisions Faster 25 – 2. Clear, Compelling Strategies Help Identify Potential Friction Points 26 – 3. Clear, Compelling Strategies Help Provide Supporting Architecture 26

• The Bottom Line 27

4. Designing a Total Rewards Program 28

• Step 1: Analyze and Assess 28 – Why Conduct an Assessment? 28 – How to Conduct an Assessment 29 – What to Consider in an Assessment 30

• Step 2: Design 31 – Defi ne the Corporate Mission and Vision 32 – Defi ne the Business Strategy 32 – Defi ne the HR Philosophy and Strategy 32 – Defi ne the Total Rewards Philosophy Statement 33 – Defi ne Your Total Rewards Strategy 33

iv Contents

• Step 3: Develop 34 – Program Purpose/Objectives 35 – Eligibility 35 – Baseline for Measurement 36 – Funding 36 – The Concept of Present Value 37 – Selection of Rewards Elements and Structure 37 – Creating the Rewards Mix 37 – Global Considerations 37 – Course of Action/Timeline 38

• Step 4: Implement 38 – Obtain Senior Management Approval 38 – Form an Implementation Team 39

• Step 5: Communicate 40 – Building a Trusting Relationship 41 – Know the Facts 41 – Crystal Clear Communication 42 – Honesty: The Best Policy 42 – Audience 42 – Management 43 – Front-Line Supervisors 43 – Employees 43 – External Audiences 43 – Key Messages 43 – Media 44 – Budget 45 – Timeline 45 – Feedback 45 – How to Communicate Bad News 45

• Step 6: Evaluate and Revise 46 – The Review Process 46 – Measurements 47 – Quantitative Measurements 47 – Qualitative Measurements 50 – Evaluative Outcomes 50

5. Communicating Total Rewards 53

• A Communications Approach with Oomph 54 • The Power of Communication 54 • Top Management Buy-In 55 • The Bottom Line 56 • Communication Fundamentals 56 • Models of Communication 57 • The Communication Process 58

– Step 1: Analyze the Situation 58 – Step 2: Defi ne the Objectives 58 – Step 3: Conduct Audience Research 59

Contents v

– Step 4: Determine Key Messages 60 – Step 5: Select Communication Channels 61 – Step 6: Develop the Communication Campaign 62 – Step 7: Implement the Campaign 63 – Step 8: Evaluate the Campaign 63

• Communicating the Program’s Richness 64 – Compensation 65 – Benefi ts 66 – Work-Life 66 – Performance and Recognition 69 – Development and Career Opportunities 69

• Special Situations 69 – Communicating with Various Levels of Employees 69 – Mergers and Acquisitions 69 – Communicating in a Union Environment 70 – Off-Shift, Off-Site, and Remote Location Employees 70 – Global Communications 71

• Media Considerations 71 – Branding 71 – Employer Branding 71

• A Case Study: Southern Company 71 • Total Rewards Branding 72 • Media Choices 73

– Written Communication 74 – Technology-Based Communication 75 – Content 78 – Resources and Priorities 78 – User Feedback 79 – Adding Information 79 – “Three Clicks” Rule 79 – Graphics 79 – Verbal Communication 79 – Audiovisual Communication 80

• Implementation 81 • Planning a Campaign 81

– Project Management 81 – Project Planning 82

• Managing a Campaign 82 – Preintroduce the Communication Campaign 82 – Communication during Program Rollout 83 – Gathering and Responding to Employee Feedback 83 – Evaluation 84 – Working with an Internal Communication Department 84 – Working with External Specialists 85

• Measuring Return on Investment 85 – Defi ne Measurements 85 – Track Statistics 85 – Investigate Cost Savings 85

• Critical Outcomes 86

vi Contents

6. Compensation Fundamentals 87

• The Foundation: A Compensation Philosophy 87 • Characteristics of Compensation Programs 90 • Elements of Compensation 91 • The Basics: Base Pay 92 • Job Analysis 92 • Job Evaluation 94

– Market-Driven Systems 94 – Job-Worth Systems 94 – Differences between Market-Driven and Job-Worth Systems 95 – The Future Is Now 96

• Market Analysis 97 • Salary Ranges 98 • Competencies 101 • Incentive Pay 102 • Design Elements 102 • Reasons for Failure 104 • Management of Pay for Performance 105

– Designing a Merit Increase Matrix 105 – Overseeing Salary Management 107

• Effective Compensation Management 107

7. Regulatory Environment: The FLSA and Other Laws That Affect Compensation Practices 109

• Fair Labor Standards Act of 1938 109 – What Is the FLSA? 112 – Who Does the FLSA Affect? 113 – What Is Covered? 113 – What Is Not Covered? 117 – Classifi cations 118 – Determination Tests for Classifying Exempt Employees 119 – Rates of Pay 120 – Overtime 123 – Commissions in Overtime Calculations 125 – Overtime Pay and Special Cases 126 – Common Problems in Computing Overtime 126 – Exclusions from Overtime Payment 127 – The FLSA/FMLA Interplay 128 – The FLSA and FMLA Regulatory Background 128 – Special Calculations 129 – Court Rulings 130 – Safe Harbor 130 – FLSA Violations and Penalties 131 – Violation-Related Defi nitions 131 – Effect of Improper Deductions from Salary 132 – What Prompts an Audit? 132 – Common FLSA Violations 133

• Sherman Antitrust Act of 1890 135 – Enforcing Antitrust 137

• Davis-Bacon Act of 1931 137

Contents vii

• National Labor Relations Act 137 • Walsh-Healey Act 137 • Service Contract Act 138 • Anti-Discrimination Laws 138

– Equal Pay Act of 1963 138 – Title VII of the Civil Rights Act of 1964 139 – Age Discrimination in Employment Act of 1967 140 – Executive Order 11246 140 – Vocational Rehabilitation Act of 1973 141 – Vietnam Era Veterans Readjustment Act of 1974 141 – American with Disabilities Act of 1990 141

8. Market Pricing 143

• Where Do You Begin? 144 • Job Analysis 144 • Job Documentation and Job Descriptions 145 • Job Evaluation 145 • Benchmark Jobs 145 • Collecting the Right Data 146 • Decision Factors in Collecting Market Data 146 • Know the Market: Half the Battle 147 • Gathering Valid Data 148 • Data Sources 149

– Purchase Published Surveys 149 – Conduct Your Own Survey through a Third Party 150 – Use Free Sources 151

• Capturing Competitive Market Data for High-Demand Jobs 151 • Crunching Numbers 151 • Options for Measuring Central Tendency 152 • Percentiles 153 • Aging Data to a Common Point in Time 153 • Weighting Market Data across Survey Sources 154 • Developing Market Index of Competitiveness 154 • Market Blips—A Word of Caution 156 • Approaches to Program Costs 157

– All-at-Once Approach 158 – Phase-In Approach 158 – Wait-and-See Approach 158

• How to Keep Employees in the Loop 158 – Who Should Communicate the Message? 159 – What Information Should Be Communicated? 159

• Opening the Pay Dialogue 160

9. Salary Surveys: A Snapshot 161

• The Big Picture 161 • Defi nition and Purposes 163 • Benchmark Surveys 164

– Which Jobs to Survey 164 – Survey Job Descriptions 165 – Which Companies to Survey 165

viii Contents

– Data to Be Gathered 166 – More Than Just Salaries 166 – Review the Survey Database 167 – When to Conduct an Ad Hoc or Special Survey 168

• Job Matching 168 • Job Title and Characteristics 170 • Survey Frequency 172 • Stretching the Salary Survey Budget 173 • Behind the Scenes 173

– Preparation 174 – Gather Data 174 – Creating the Master File 174 – Initial Reports 175 – Final Results 175

• The Compensation Practitioner’s Role 175 – Extracting Data 176 – Synchronizing Surveys with Economic Data 176 – Communications 177

• Salary Survey Guidelines 177 – Best Practices in Survey Selection 178 – Characteristics of Good Salary Surveys 178

10. Job Analysis, Documentation, and Evaluation 180

• Job Documentation 182 • What Is a Job? 184 • Job Analysis: A Step-by-Step Process 185

– Step 1: Obtain Management Approval 185 – Step 2: Gain Employee Acceptance 186 – Step 3: Decide Who Will Conduct the Analysis 187 – Step 4: Think in Terms of Work Flow 187 – Step 5: Consult Secondary Sources First 189 – Step 6: Decide Method and Collect Data 190 – Step 7: Document the Analysis 199 – Step 8: Obtain Necessary Approvals 202 – Step 9: Test for Legal Compliance 202 – Step 10: Conduct a Reality Test 203 – Step 11: Formulate Specifi c Recommendations 203 – Step 12: Keep Up -to-Date 203

• Job and Work Analysis: Weighing Costs and Benefi ts 204 • Job Evaluation 205 • Internal Job Evaluation—Nonquantitative Methods 205 • Internal Job Evaluation—Quantitative Methods 208 • Internal Job Evaluation—Point Factor 213

11. Base Pay Structures 223

• Pay Structures 223 • General and Specifi c Factors Affecting Pay Structures 224 • Anatomy of a Pay Structure 226

Contents ix

• Pay Ranges and Range Spreads 226 – Some Practical Considerations 227

• Midpoints 229 • Range Penetration 230 • Midpoint Progression 231

– Three Approaches to Developing Midpoints 231 • Pay Grades 232

– Segmentation of Pay Grades 232 – Pay-Grade Overlap 233 – Multiple Pay Structures 233

• Developing a Pay Structure 233 – Internal Equity 233 – External Competitiveness 236 – Defi ning Competition 237

• Key Steps in Designing an Effective Pay Structure 237 – Step 1: Review Overall Point Differentials 238 – Step 2: Rank Order Jobs by Total Evaluation Points 239 – Step 3: Develop Job Groupings 240 – Step 4: Develop Preliminary Point Bands 240 – Step 5: Check Intrafamily and Supervisory Relationships 242 – Step 6: Incorporate Market Data 242 – Step 7: Review Market Inconsistencies 244 – Step 8: Smooth Out Grade Averages 245 – Step 9: Review Differences between Midpoints and Market Averages 246 – Step 10: Resolve Inconsistencies between Internal and External Equity 246

• Pitfalls and Precautions 247 • Broadbanding 248 • Starting Rates of Pay 249 • Increases to Base Rates of Pay 249 • Merit Pay Considerations 252 • Performance Appraisal Considerations 252 • Maintaining and Auditing the Pay Program 253 • Keys to Successful Pay Program Maintenance 253 • Ongoing Administrative Activities 254 • Pay Program Audits 254

– Five Steps to Prepare for and Conduct Pay Program Audits 254

12. Sales Compensation Fundamentals 257

• Working with the Sales Organization 257 • Six Areas of Sales Compensation Plan Involvement 260

– 1. Problem Resolution 261 – 2. Design and Implementation Process 262 – 3. Sales Compensation Guiding Principles 263 – 4. Competitive Pay Assessments 264 – 5. Industry Trends and Practices 264 – 6. Plan Effectiveness Assessment 265

• Learning a New Language 265 • Compensation Tied to Total Rewards 266

– Direct and Indirect Financials (Total Pay) 266

x Contents

– Affi liation 267 – Career 268 – Work Content 268

• Variable Pay Plan Categories 268 • Sales Compensation Philosophy 269 • Guiding Principles 270 • Eligibility for Sales Compensation 270

– Target Earnings 271 – Salary/Incentive Ratio and Target Upside 272 – Salary/Incentive Ratio (Mix) 273 – Target Upside (Leverage) 276 – Plan Measures and Performance Standards 277

• Timing Considerations 281 • Alternative Mechanics 282

– Plan Types 282 – Modifi ers 284

• Understanding How Sales Compensation Fits 286

13. Executive Compensation: An Introduction 287

• Owner-Manager Confl ict: Agency Theory 288 • Other Theories That Explain and Infl uence Executive Compensation 289 • External Infl uences on the Executive Compensation Package 291 • Sources of Data on Executive Compensation 292 • Components of Executive Compensation 293

– Salary 293 – Bonus 293 – Stock Options 294 – Stock Grants 294 – Other Stock-Based Forms of Compensation 295 – Pensions 295 – Benefi ts and Perquisites 296 – Severance Payments 296 – Change-in-Control Clauses 297

• Making the Offer Attractive 297 • Providing the Proper Incentives 297 • Designing the Contract to Retain the Executive 299 • Restrictions 299 • Minimizing Costs to the Corporation 300

14. Linking Pay to Performance 311

• Determining What to Reward 312 • Documenting Performance Standards 313 • Establishing a Merit Budget 315 • Determining Budget Size 316 • Determining Budget Allocation 316 • Setting Merit Pay Policy 317 • Policy Decisions 317

– Size: Absolute vs. Relative 318

Contents xi

– Timing: Anniversary vs. Common Review 318 – Delivery: Base vs. Lump Sum 319

• Policy Implementation 320 – Performance 320 – Performance and Position in Range 322 – Performance and Position in Range Using Variable Timing 323

• Managing a Merit Pay Plan 324 • Training 325 • Perception of Fairness 325 • How Computer Technology Can Assist Administration 326 • Evaluating a Merit Pay Plan 326 • Merit Pay Advantages and Disadvantages 327 • Linking Results and Competencies to Business Strategy 328 • Determining the Performance Management Cycle 330

– Phase I: Planning Performance for the Upcoming Period 330 – Phase II: Coaching Performance and Giving Feedback throughout the Period 331 – Phase III: Rating Performance for the Just-Completed Period 331

• Performance Rating Approaches 332 – Using Summary Ratings 333 – Employee Responsibility 333

• Multirater Assessment 334 • Linking Performance Management and Pay Delivery 335

15. Cash Bonus Plans and Recognition Programs 338

• What Is a Sign-on Bonus? 338 • Size of Sign-on Bonus 339 • Claw Back Clause 340 • Aligning the Sign-on Bonus with Total Rewards 341 • Executive Sign-on Bonus 341

– Golden Hellos 341 • Potential Pitfalls 342

– Causes Resentment among Existing Employees 342 – Relocation Expenses 342 – Lack of ROI Data 342 – Taking a Risk 342

• Communicating the Sign-on Bonus 343 • What Is a Referral Bonus? 343 • Eligibility 344 • Timing of Cash Award Distribution 344 • Promoting an Employee Referral Program 345 • What Is a Spot Bonus? 348 • Size of Spot Bonus 349 • Spot Recognition Program Guidelines 349 • How to Effectively Use Spot Recognition 351 • Potential Pitfalls 352 • Conducting the Recognition Event 352 • Documenting Recognition 354 • Communicating the Spot Program 354

– Who Does the Recognizing? 354

xii Contents

• Legal and Tax Requirements 355 – Determining Tax Liability 355 – Legal Compliance 355

• What Is a Retention Bonus? 356 • Building a Business Case 357

– Instrumental in Meeting Organizational Goals 360 – Combating Turnover 360

• Retention Bonus Q&A 361 – ERISA Implications 363

• Potential Pitfalls 363 • Communicating the Retention Plan 364 • Cash Bonuses in the Total Rewards Mix 364

16. Equity-Based Rewards 366

• Business Structures 366 • Compensation Plans Using Equity 367 • Benefi ts Plans Using Equity 368 • Equity Terminology 368 • Evolution of Equity-Based Rewards 369 • Evolution of Stock Options 369 • Evolution of Benefi ts Plans Using Equity 370

– ESPPs 370 – ESOPs 370

• Why Equity Is Used to Reward Employees 370 • Legal, Tax, and Accounting Issues 371 • Impact of Legislation on Equity-Based Rewards Programs 371

– Internal Revenue Code 371 • Forms of Taxation—Employee 372 • Forms of Taxation—Employer 374 • Accounting Basics—Financial Statements 374

– Income Statement 375 • Accounting for Equity-Based Rewards 375

– APB 25 376 – FAS 123(R) 376 – Equity Accounting Continuum 376 – Impact of Mandatory Expensing 377 – Shareholder Issues 377

• Overview of Stock Options 378 – Key Dates 378 – Stock Option Characteristics 379 – Advantages of Stock Options 379 – Disadvantages of Stock Options 380

• Types of Stock Options 380 – Incentive Stock Option (ISO) 380 – Nonqualifi ed Stock Option (NQSO) 382

• Types of Stock Awards and Alternatives 382 – Performance Share Plan (PSP) 383 – Restricted Stock Award (RSA) 384 – Restricted Stock Unit (RSU) 386 – Performance Accelerated Restricted Stock Award Plan (PARSAP) 386

Contents xiii

– Stock Appreciation Right (SAR) 387 – Phantom Stock 388 – Performance Unit Plan (PUP) 389

• The Use of Equity in Benefi ts Plans 391 • Employee Stock Purchase Plan (ESPP) 391

– Statutory Requirements 391 – ESPP Pro and Con 392 – ESPP Tax Implications for the Employee 392 – ESPP Tax Implication for the Employer 393

• Defi ned Contributions Plans 393 – Employee Stock Ownership Plan (ESOP) 393 – ESOP vs. Stock Options 394 – Money Purchase Pension Plans 394 – 401(k) Plans 395 – 403(b) Plans 396

17. Employee Benefi ts Basics 397

• Historical Perspective of Benefi ts 397 • Elements of Benefi ts 399

– Income Protection Programs 401 – Pay for Time Not Worked Programs 401

• Benefi ts Plan Objectives 401 – Employer Objectives 402 – Employee Objectives 402

• Government Regulation of Benefi ts Plans 403 – Equal Employment Opportunity Commission (EEOC) 406 – Department of Labor (DOL) 406 – Securities and Exchange Commission (SEC) 406 – Pension Benefi t Guaranty Corporation (PBGC) 406

• Statutory Benefi ts 407 – Social Security 407 – Workers’ Compensation 410 – Unemployment 410 – Nonoccupational Disability 411

• Health and Welfare Plans 411 – Health and Welfare: A Brief History 411 – Health and Welfare Plan Elements 412

• Health Care 412 – Health Maintenance Organization (HMO) 412 – Preferred Provider Organization (PPO) 412 – Point of Service (POS) 413 – Point of Service (POS) Key Characteristics 413 – Indemnity Plans 414 – Prescription Drugs 415 – Behavioral Health 415 – Dental Plans 415 – Vision 416 – Long-Term Care 416

xiv Contents

• Disability Income 416 – Sick Leave 416 – Short-Term Disability (STD) 416 – Long-Term Disability (LTD) 416

• Survivor Benefi ts 417 – Term Life Insurance 417 – Accidental Death and Dismemberment (AD&D) 417 – Supplemental Life Insurance 417 – Dependent Life Insurance 417

• Flexible Benefi ts 418 • Retirement Plans 418

– Defi ned Benefi t (DB) Plans 418 – Defi ned Contribution (DC) Plans 420

• Pay for Time Not Worked Benefi ts 422 – Vacation 422 – Sick Leave 422 – Legal Holidays 422 – Bereavement Leave 423 – Military Leaves 423 – Jury Duty 423 – Personal Holidays 423 – PTO (Personal Time Off) Banks 423

• Other Benefi ts 423 • The Importance of Effective Communication 424

– Legal Requirements 425 – Cobraize Employees 425 – Creating and Building Awareness of Benefi ts 426 – Enhancing Confi dence and Trust 426 – Involve Employees in Benefi t Changes 426

• Projected Benefi ts Trends 427

18. Benefi ts Compliance: An Overview for the HR Professional 428

• The Employee Retirement Income Security Act of 1974 (ERISA) 428

– The Nature of the Pension Promise: Defi ned Benefi t vs. Defi ned Contribution 429 – The Scope of ERISA 430 – Regulatory Exemptions 432 – Reporting and Disclosure 433 – The “Written Plan” and Claims Procedure Requirements 434 – The Summary Plan Description 436 – Plan Assets and the ERISA Trust Requirement 436 – Minimum Participation Standards 437 – Minimum Vesting Standards 437 – Benefi ts Accrual Requirements 439 – Form of Payment of Benefi ts Requirements 439 – Minimum Funding Standards 440 – Fiduciary Duties 440 – COBRA Group Health Plan Continuation Coverage Requirements 441

Contents xv

– Pension Plan Termination Insurance 442 – Multiple Employer Welfare Arrangements 442

• The Internal Revenue Code 444 – Tax Advantages of Qualifi ed Retirement Plans 444 – Pension, Profi t Sharing, and Stock Bonus Plans 445 – Impact of EGTRRA on Money Purchase Pension Plans 446 – The Income Taxation of Fringe Benefi t Plans 447

• The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) 451

– Increases in Annual Employee Deferral Limits 452 – Increases in the Overall Code §415 Contribution Limitation 452 – Deferred Compensation Plans Under Code §457 453 – Rollovers 454 – The Roth 401(k) Plan Option 454 – Deduction Limits 455 – Notice Requirement for Pension Plan Benefi t Accruals Reduction 455 – Top-Heavy Rules 456 – Multiple-Use Test Repealed 457 – Same Desk Rule Eliminated 457 – Safe Harbor Hardship Withdrawal Rules Modifi ed 457

19. Worker Privacy, Unpaid Leave, and Other Benefi t-Related Laws That Protect the Individual 458

• The Health Insurance Portability and Accountability Act of 1996 (HIPAA) 458

– Title I: Group Health Plan Portability 458 – Title II, Subpart F: Administrative Simplifi cation 462

• The Newborns’ and Mothers’ Health Protection Act 465 • The Mental Health Parity Act of 1996 466 • The Women’s Health and Cancer Rights Act of 1998 467 • Family and Medical Leave Act of 1993 (FMLA) 468

– Employer Coverage, Employee Eligibility and Leave Entitlement 468 – Intermittent Leave 470 – Substitution of Paid Leave 470 – Health Care Providers 471 – Maintenance of Health Benefi ts 471 – Job Restoration 472 – Employee Notice and Certifi cation 472 – Employer Notice and Certifi cation 473

• Nondiscrimination Laws 474 – Title VII of the Civil Rights Act of 1964 474 – Age Discrimination in Employment Act of 1967 (ADEA) 475 – Americans with Disabilities Act of 1990 (ADA) 476

• Uniformed Services Employment and Re-employment Rights Act of 1994 (USERRA) 478

– Profi t-Sharing Contributions Required 479 – 401(k) Contributions 479 – Re-employment Rights 479 – Benefi ts Entitlement 480 – Military COBRA Rights Required 480

xvi Contents

• Worker Adjustment and Retraining Notifi cation Act of 1988 (WARNA) 480

– Plant Closing 480 – Mass Layoff 481 – Impact on Employee Benefi ts 481

• In Closing 481

20. Planning Benefi ts Strategically 483

• Internal and External Infl uences on Strategy 483 • The Strategic Planning Process 486 • Approaches to Strategic Benefi ts Planning 487

– Top-Down Approach 488 – Backing-in Approach 489

• Who’s Managing the Strategic Benefi ts Planning Process? 490 • Design and Implementation 491

– Step 1: Developing a General Philosophy 491 – Step 2: Understanding the Environment 491 – Step 3: Creating the Design Blueprint 492 – Justifying Costs 493 – Step 4: Testing and Finalizing the Design 493 – Financial Management 494 – Administration and Systems Support 495 – Step 5: Implementing the Rollout 495

• Outcomes of Strategic Benefi ts Planning 496 • Evaluation 497

– The Role of Evaluation 498 • Beyond the Strategic Plan 499

21. Implementing Flexible Benefi ts 500

• Types of Flexible Benefi ts Plans 500 – Pretax Premium Plans 501 – Flexible Spending Accounts 501 – Simple Choice Plans 501 – Full Flexible Benefi ts Plans 502

• Flexible Benefi ts Plan Design 502 – Eligibility 502 – Enrollment Choices 504 – Family and Employment Status Changes 505 – Special Classes of Employees 506

• Pricing Flexible Benefi ts Options 507 – Market-Based Pricing and Credits 508 – Incentive-Based Pricing and Credits 508 – Net Cost Pricing without Credits 508

• Tax Issues and Employer Objectives 509 – Pretax Benefi ts 509 – Pretax or After-Tax Benefi ts 509 – After-Tax Benefi ts 510 – “Freezing” Pay for Pricing Purposes 510 – Adjusting Prices from Insured Rates 510

Contents xvii

• Communication Approaches 511 – Communication Timing 512

• Annual Enrollment Process 512 – Phase I: Data Setup 513 – Phase II: Individualized Worksheets 513 – Phase III: Distribution of Information 513 – Phase IV: Confi rmation 513 – Phase V: Integration of Information 513 – Phase VI: Review 513

• Ongoing Enrollment 514 • Annual Re-enrollment 514 • Spending Account Administration 515 • Legal Issues 515

– Summary Plan Description 515 – Form 5500 515 – Nondiscrimination Rules 515

22. Work-Life Effectiveness 518

• Changing Demographics 519 • The Evolution of Work-Life Initiatives 520 • Work-Life Effectiveness: A Defi nition 520 • Why Companies Address Work-Life Issues 522

– To Attract and Retain Talent 522 – To Raise Morale and Job Satisfaction 524 – To Increase Productivity 524 – To Increase Commitment and Engagement 525 – To Reduce Health Care Costs 525 – To Combat Burnout 526 – To Attract Investors 527 – To Be a Good Corporate Citizen 528

• Ways to Address Work-Life Issues 528 – Programs 528 – Policies and Benefi ts 529 – Practices 530

• Supportive Work Environment 530 • Company Culture 531 • Work-Life Strategy 532

– Developing a Work-Life Vision 533 – Marketing Work-Life Initiatives 533

• How to Begin 534 • Source of Commitment 535 • Anticipating Problems 536 • Developing and Appropriate Marketing Strategy 536 • Putting it All Together: Checklist 536 • Calculating the Return on Investment 538

– Cost and Value 538 • The Future of Work-Life Effectiveness 539

23. Caring for Dependents 541

• Child-Care Issues 541

xviii Contents

• Direct Child-Care Services 543 • Assessing Child-Care Needs 548 • On-Site and Near-Site Child-Care Centers 549 • Consortium Child-Care Centers 550 • Back-Up (Emergency) Child Care 551 • Care for Sick Children 552 • School-Age Child Care 553 • 24-Hour (Odd-Hour) Care 553 • Other Child-Care Options 554

– Providing Information and Support 554 – Policies and Customized Work Arrangements 554 – Providing Financial Assistance 554

• Elder-Care Issues 555 • Description of Elder Care 557 • Cost of Elder Care and the Needs of Working Caregivers 557 • Employers’ Responses to Employees’ Elder-Care Needs 558 • Information and Support 559

– Elder-Case Consultation and Referral 560 – Elder-Care Workshops/Support Groups 561 – Elder-Care Resource Expo 561 – Work-Life Resource Area 561 – End-of-Life Supports 562

• Policies 562 • Financial Assistance/Financial Planning 563

– Subsidized Emergency or Respite In-Home Elder-Care Services 563 • Direct Elder-Care Services 563

– Geriatric Care Managers 563 – Supports for Community-Based Services 563 – Adult Care Centers 564 – Intergenerational Care Programs 564

• Implementing a New Elder-Care Program 564 • Evaluating an Elder-Care Program 565 • The Future of Corporate Elder Care 565

24. Culture at Work 566

• Defi ning Culture 567 – Tips for Contending with Resistance 570 – Beliefs and Rituals 572 – Diversity 574 – Formality and Innovation 575

• Importance of Culture 576 • Matching Culture with Strategic Goals 577 • Impact of Culture on Total Rewards Programs 578

Notes 585

Total Rewards Glossary 589

Handbook References 821

WorldatWork Bibliography 823

Index 827

xix

Introduction: Redefi ning Employee Rewards

Anne C. Ruddy, CCP, CPCU

President, WorldatWork

Not long ago, human resources professionals seemed to have that “pay thing” down to a science. Reward employees with decent dollars for compensation, add top- notch health care and retirement benefi ts, and voila! People came, people stayed, and people worked. Employers had their pick from a seemingly endless talent pool. And, with any luck, employees matched their career aspirations and enjoyed life- long service with a company.

So much for yesterday. The birth of new industries and emerging markets have sprouted mergers and

acquisitions, downsizings, globalization, corporate restructurings, and technologi- cal advances. All of this has occurred in a rapidly changing economy with a tight labor market. With every dollar at stake, nothing remains sacred as employers in- creasingly look for ways to work smarter, faster, and more effi ciently.

At the same time, the sea of faces in the workforce has changed. Today’s labor pool is more diverse and mobile, with a rapidly growing group of older workers and retirees. More women, working parents, dual-income households, single parents, Gen X-ers, and Gen Y-ers crowd the market. And baby boomers—tired of toiling long hours—are questioning their prior commitment levels.

Indeed, job-related attitudes, expectations, and priorities are changing on both sides of the desk. As employers retool, HR professionals must rethink their direc- tions and realign their focus. The question becomes: Does your current structure of HR investments help ensure the success of your organization ’ s business strategy?

If not, it’s time to abandon the tried-and-true ways of thinking and redefi ne em- ployee rewards against the new employee deal.

Strangely enough, the new employee deal isn’t about just pay increases or of- fering employees more money. That’s not to say that the almighty dollar has lost its power or punch, but the way money talks requires an updated translation. It requires focusing on more than pay. It requires focusing on total rewards.

The process of addressing total rewards begins by balancing the organization’s business strategy, capabilities, and values with employees’ needs, abilities, and val- ues. It ends with assembling and marketing a compelling rewards package that will attract, motivate, and retain the people you need for organizational success. With the right rewards strategy and programs in place, the organization can reasonably expect two interrelated outcomes: improved business results and a positive shift in employee behavior and contributions.

THE EVOLUTION OF REWARDS

Step back in time to the early 1900s. The owner or operator usually bore the respon- sibility for people’s pay, and little was offered outside of cash compensation. Only a handful of companies offered pensions, profi t sharing, and guaranteed wages to skilled workers. There was minimal government regulation, and, consequently, few safety nets such as medical insurance, unemployment compensation, overtime pay, or Social Security.

Early in the twentieth century, benefi ts were practically nonexistent for the com- mon worker. Benefi ts became popular as an acceptable way to evade wage and price controls during World War II because benefi ts were not counted as wages. Labor unions likewise increased their focus on benefi ts in the mid-1900s.

After World War II, the industrial boom introduced increased competition, but many industries were still unregulated. The majority of companies competed only domestically. Manufacturing was the order of the day. Few staff functions existed. Salary structures were just that—rigid and highly controlled—and benefi ts pro- grams were based largely on formulas that served the entire employee population, which was far more homogeneous than it is today.

By the 1970s and 1980s, organizations recognized that strategically designed com- pensation and benefi ts programs could give them the edge in a rapidly changing environment. Suddenly, the relatively simple compensation and benefi ts programs of the past were requiring consideration of their strategic impact and relationship to one another. Integration became key, and compensation and benefi ts profes- sionals emerged as critical strategic partners in their organizations’ leadership—a position still occupied by leaders in the fi eld today.

In the 1990s, the profession continued to mature. Increasingly, it became clear that the battle for talent involved much more than highly effective, strategically de- signed compensation and benefi ts programs. While these programs remain critical, the most successful companies have realized that they must take a much broader look at the factors involved in attraction, motivation, and retention.

As a result of rewards that traditionally were slotted into single-silo solutions of pay, benefi ts, training, or labor—and having companies manage these solutions separately—the programs tended to be disconnected from one another and from the broader business strategy. When questions arose, problems were dealt with piece- meal. In some cases, they even undercut one another or sent confl icting messages.

Increasingly, organizations have demanded interdisciplinary solutions to compli- cated problems. Bundling HR disciplines to address these complexities is what has emerged as total rewards.

Total rewards can be defi ned as all of the employer’s available tools that may be used to attract, motivate, and retain employees. This encompasses every single in- vestment that a company makes in its people and everything its employees value in the employment relationship. Why do employees choose to remain with a particular employer? Why do they leave? What factors motivate performance and commit- ment? These questions are answered with a total rewards perspective.

The objective of a well-designed total rewards program is to drive desired behav- iors in the workforce, reinforce overall business strategy, and ensure organizational success. The solution is to fi nd the proper mix of rewards that satisfi es the personal and fi nancial needs of a current and potential workforce given existing business conditions and cost constraints.

xx Introduction

Total rewards integrates several classic HR disciplines and innovative business strategies. Designing a total rewards program can’t be done with a cookie cutter. What’s right for one organization may be wrong for another. But while the optimum mix differs from company to company—and even within the same company over time—the goal is the same: to produce desired, measurable results that send the right signals to employees and deliver an excellent return on your organization’s investment.

WorldatWork hopes you fi nd this book helpful in performing your job require- ments but, more importantly, we hope you fi nd this book instrumental in taking your job to the next level and developing your skills as a future human resources leader and total rewards professional.

Introduction xxi

xxii

About the Author

This book is the collaborative effort of a team of WorldatWork faculty, staff, and con- sulting experts. WorldatWork (www.worldatwork.org) is the association for human resources professionals focused on attracting, motivating, and retaining employees. Founded in 1955, WorldatWork provides practitioners with knowledge leadership to effectively implement total rewards—compensation, benefi ts, work-life, perfor- mance and recognition, development and career opportunities—by connecting employee engagement to business performance. WorldatWork supports its 30,000 members and customers in 30 countries with thought leadership, education, publi- cations, research, and certifi cation.

For more information, see www.worldatwork.org.

1

Total Rewards: Everything That Employees Value in the Employment Relationship 1

Fifty years ago, when a group of visionary professionals formed what was to become WorldatWork, the world of work and the world of pay were much simpler than they are today. Compensation was the primary “reward” and benefi ts, still in their infancy, were a separate and seemingly low-cost supplement for employees. The concept of combining these things—let alone using them with still other “rewards” to infl uence employee behavior on the job—was decades away.

Today we are only partially through an evolution from a largely industrialized business environment to a far more virtual, knowledge- and service-based environ- ment, at least in North America and Europe. Among some major shifts:

• Business increasingly operates as a global village, with work moving to different parts of the world to take advantage of lower-cost labor and address skill gaps.

• Technology continues to revolutionize work, not only in terms of automating more jobs, but also in enabling the virtual workplace as more professionals conduct business in home offi ces or remote locations.

• Women are equally represented in the overall workforce, if not yet fully in the ranks of senior management.

• Traditional hierarchical distinctions have eroded in the name of faster de- cision making and speed to market. Teamwork is one of the most common behaviors rated in performance reviews.

• More businesses and business units in the United States are owned by Euro- pean or Asian parents, which expect their practices and norms to be followed and respected in the workplace.

• Job mobility is taken for granted, with workers averaging six employers over the course of a career.

• Gender, race, and religious differences are a common part of most work en- vironments. Diversity has become a respected value, demonstrated through a range of specifi c programs.

2 Everything That Employees Value in the Employment Relationship

• Business leaders increasingly regard employees as drivers of productivity, rather than as relatively interchangeable cogs in a larger wheel.

Along with these changes have come dramatically different views about the na- ture of rewards. In the shift toward a more knowledge- and service-based economy, the relationship, or deal, between employer and employee began to evolve as well. Viewing employees as performance drivers meant thinking differently about what it would take to attract, keep, and engage them in giving discretionary effort on the job. And so total rewards entered the lexicon to address these needs.

BROADENING THE DEFINITION OF TOTAL REWARDS

The defi nition of total rewards always sparks debate. For example, Figure 1.1 in- cludes a comprehensive list of items that have shown up at one time or another in one company’s defi nition of total rewards. From this, it is easy to see how people can use the term in conversation only to fi nd that they are referring to very differ- ent notions.

Generally speaking, there are two prevailing camps of defi nitions:

• Narrow defi nitions . These virtually always comprise compensation and benefi ts, and sometimes include other tangible elements (e.g., development). This sometimes is referred to as total compensation or total remuneration.

• Broad defi nitions . These can expand to encompass everything that is “reward- ing” about working for a particular employer or everything employees get as a result of their employment. Sometimes terms such as value proposition or total value are used interchangeably with total rewards .

While the narrower defi nitions have been around for a long time, it is the broader notion that is generating buzz. (See Sidebar 1.1.) Indeed, much of the current activ- ity in total rewards involves companies moving to a broader defi nition. There are several reasons for this:

• Erosion of the “core” elements of the package . The traditional elements of rewards— pay, benefi ts, and stock awards—are no longer differentiating factors for orga- nizations. The competitive position for pay is trending toward median or mean. Benefi ts costs continue to rise. Stock programs, such as the distribution of op- tions, do not offer the appeal they once did. Given all of this, a logical response is to broaden what companies provide for the overall employment package.

• Pressure for operational effi ciency and effectiveness . Total rewards can represent a major cost element. As companies seek to manage costs tightly, there is more emphasis on ensuring that all costs are counted and managed. By redefi ning rewards more broadly and focusing on those elements that achieve the biggest payoff, organizations can drive toward effi ciency.

• Catering to diverse needs . Companies today are managing a much more het- erogeneous population. For the diverse workforce, no single component be- comes a value driver. Employees have choices to make and a need for greater fl exibility. A broad defi nition of total rewards helps employers show how their slate of rewards responds to the broad needs of today’s global workforce.

• Need to more strongly reinforce business strategy . Companies are concerned about sending clear business messages to employees. A properly structured total

Broadening the Defi nition of Total Rewards 3

FIGURE 1.1 Total rewards: different things to different employers.

Direct Financial Base Salary Bonus Cash Profi t Sharing Employee Referral Program (Cash) Stock Programs Suggestion Program (Cash for Ideas)

Indirect Financial Adoption Assistance College Savings Plan College Tuition and Fees Commuter Reimburse- ment (Pre-tax) Company Cafeteria Company Store Dependent Care Dependent Scholarships Discount Tickets Educational Assistance Fitness Facilities Dis- counts Health and Welfare Benefi ts Incremental Dependent Care (Travel) Insurance (Auto/Home) via Payroll Deduction Long-Term Care Insur- ance Matching Gifts Relocation Program Retirement Plan(s) Saving Bonds via Payroll Deductions Scholarships Stock Purchase Program Student Loans Tuition Reimbursement

Work Autonomy Casual Dress Policy Challenging Work Constructive Feedback Covered Parking Ergonomics/Comfortable Workstations Flexible Work Schedules Free Parking Interesting Work Job Skills Training Modern, Well-Maintained Workspace Open Communication Performance Manage- ment Promotion Opportunities Safe Work Environment Suggestion Program (No Cash) Telecommuting Opportunities Uniforms/Uniform Allowance Workshops

Career 360º Skills Assessment Career Advancement Coaching Lunch and Learn Series Management Development Mentoring Program Open Job Posting Preretirement Counseling Service Awards Training and Development

Affi liation Athletic Leagues Community Involvement Diversity Programs Employee Celebrations Employee Clubs Professional Associations Seminars Spring and Holiday Parties Support Groups Volunteer Connection

Other/Convenience ATMs Onsite Carpooling/Van Pooling/Shuttles Car Seat Vouchers (for Newborns) Child Care Resources Credit Union Employee Assistance Program Employee Card and Gift Shop Expectant Parent Pro gram Legal Services Medical Center Military Deployment Support Online Services Onsite Dry Cleaning Pickup Onsite Flu Shots Onsite Food Services Onsite Post Offi ce Personal Travel Agency Wellness Program Worldwide Travel Assistance

4 Everything That Employees Value in the Employment Relationship

rewards package sends a key message—by aligning all the components of total rewards with the overall business vision, a company ensures its workforce is on the same page.

Given these factors, it is not surprising that a broader defi nition is gaining favor in the marketplace. Companies still need to decide how broadly they want to defi ne total rewards, based on what they can adequately measure and manage.

Sidebar 1.1: How We Defi ne It

For the purposes of this book, the term total rewards refers to everything that employees value in the employment relationship (i.e., everything an employee gets as a result of working for the company).

WorldatWork defi nes total rewards as the monetary and nonmonetary re- turn provided to employees in exchange for their time, talents, efforts, and results. It involves the deliberate integration of fi ve key elements that effec- tively attract, motivate, and retain the talent required to achieve desired busi- ness results. The fi ve key rewards elements are:

• Compensation. • Benefi ts . • Work-Life. • Performance and Recognition. • Development and Career Opportunities.

Total rewards strategy is the art of combining these fi ve elements into tailored packages designed to achieve optimal motivation. (See Figure 1.2: Components of total rewards.)

For a total rewards strategy to be successful, employees must perceive mon- etary and nonmonetary rewards as valuable.

FIGURE 1.2 Components of total rewards.

Evolution of the WorldatWork Total Rewards Model 5

EVOLUTION OF THE WORLDATWORK TOTAL REWARDS MODEL

In 2000, when the American Compensation Association changed its name to WorldatWork, the association affi rmed its commitment to the concept of total re- wards as a more comprehensive model refl ecting the value employees receive from their employment.

In the same year, after facilitating discussion with leading thinkers in the fi eld, WorldatWork introduced a total rewards framework intended to advance the con- cept and help practitioners think and execute in new ways. The model focused on three elements:

• Compensation (e.g., pay, incentives). • Benefi ts (e.g., health care, retirement funding). • The Work Experience .

• Acknowledgment . • Balance (of work and life). • Culture . • Development (career/professional). • Environment (workplace).

Up to this point, the association had focused solely on compensation and benefi ts. Yet, specialists and generalists alike agreed that compensation and benefi ts—while foundational and representing the lion’s share of human capital costs—cannot be fully effective unless they are part of an integrated strategy of other programs and practices to attract, motivate, and retain top talent.

Thus, “the work experience” aspect of the fi rst WorldatWork total rewards model included aspects of employment that may be programmatic or just part of the over- all experience of working. For instance, acknowledgment may be part of a formal rewards program or may be as simple as a “thank you” from the boss or a coworker. Workplace fl exibility (part of work-life) may manifest itself as a formal telework pro- gram or as having a culture or practice that embraces work-life fl exibility.

From 2000 to 2005, the bodies of knowledge associated with total rewards became more robust as practitioners experienced the power of integrated strategies. Orga- nizational and departmental structure changes allowed for better integration, and professional understanding improved, as well. Advanced literature, research, and case studies accelerated visibility for total rewards beyond the Human Resources (HR) profession, garnering notice from line managers, and, indeed, the C-suite.

Given this advanced thinking and the increased importance of total rewards as a core business strategy, WorldatWork convened teams of leading professionals in the fi eld to create an enhanced view of total rewards. The result: a comprehensive model that demonstrates the context, components, and contributions of total re- wards as part of an integrated business strategy. (See Figure 1.3.)

There are fi ve elements of total rewards, each of which includes programs, prac- tices, elements, and dimensions that collectively defi ne an organization’s strategy to attract, motivate, and retain employees. These elements are:

• Compensation. • Benefi ts . • Work-Life. • Performance and Recognition. • Development and Career Opportunities.

6 Everything That Employees Value in the Employment Relationship

The elements represent the toolkit from which an organization chooses to offer and align a value proposition that creates value for both the organization and the employee. An effective total rewards strategy results in satisfi ed, engaged, and pro- ductive employees who, in turn, create desired business performance and results.

As defi ned here, the elements are neither mutually exclusive nor intended to rep- resent the ways that companies organize or deploy programs and elements within them. For instance, performance management may be a compensation-function– driven activity, or decentralized in line organizations; it can be managed formally or informally. Likewise, recognition could be considered an element of compensation, benefi ts, and work-life.

The WorldatWork model recognizes that total rewards operates in the context of overall business strategy, organizational culture, and HR strategy. Indeed, a compa- ny’s exceptional culture or external brand value may be considered a critical com- ponent of the total employment value proposition. The backdrop of the model is a globe, representing the external infl uences on business, such as legal/regulatory issues, cultural infl uences and practices, and competition.

Finally, an important dimension of the model is the “exchange relationship” be- tween the employer and employee. Successful companies realize that productive employees create value for their organizations in return for tangible and intangible value that enriches their lives.

EXPLORING THE KEY AREAS

Following is a brief description of the fi ve elements of the WorldatWork total re- wards model. (See Figure 1.4 and Figure 1.5.)

FIGURE 1.3 WorldatWork total rewards model.

Exploring the Key Areas 7

Total Rewards Component Defi nition

Compensation Pay provided by an employer to an employee for services rendered (i.e., time, effort, and skill). Includes both fi xed and variable pay tied to levels of performance.

Benefi ts Programs an employer uses to supplement the cash compensation that employees receive. These health, income protection, savings, and retirement programs provide security for employees and their families.

Work-Life A specifi c set of organizational practices, policies, and programs plus a philosophy that actively supports efforts to help employees achieve success at both work and home.

Performance and Recognition Performance: The alignment of organizational, team, and individual efforts toward the achievement of business goals and organizational success. It includes establishing expectations, skill demonstration, assessment, feedback, and continuous improvement. Recognition: Acknowledges or gives special attention to employee actions, efforts, behavior, or performance. It meets an intrinsic psychological need for appreciation for one’s efforts and can support business strategy by reinforcing certain behaviors (e.g., extraordinary accomplishments) that contribute to organizational success. Whether formal or informal, recogni- tion programs acknowledge employee contributions immediately after the fact, usually without predetermined goals or performance levels that the employee is expected to achieve. Awards can be cash or noncash (e.g., verbal recognition, trophies, certifi - cates, plaques, dinners, tickets, etc.).

FIGURE 1.4 Total rewards defi nitions.

(continued)

8 Everything That Employees Value in the Employment Relationship

Development and Career Opportunities

Development: A set of learning experi- ences designed to enhance employees’ applied skills and competencies. Devel- opment engages employees to perform better and engages leaders to advance their organizations’ people strategies. Career opportunities: A plan for employ- ees to advance their career goals. May include advancement into a more re- sponsible position in an organization. The organization supports career op- portunities internally so that talented employees are deployed in positions that enable them to deliver their great- est value to their organization.

FIGURE 1.4 (Continued)

FIGURE 1.5 Model defi nitions.

Total Rewards Total rewards is the monetary and nonmonetary return provided to employees in exchange for their time, talents, efforts, and results. It involves the deliberate inte- gration of fi ve key elements that effectively attract, motivate, and retain the talent required to achieve desired business results. The fi ve key rewards elements are:

• Compensation. • Benefi ts. • Work-Life. • Performance and Recognition. • Development and Career Opportunities.

Total rewards strategy is the art of combining these fi ve elements into tailored packages designed to achieve optimal motivation. For a total rewards strategy to be successful, employees must perceive monetary and nonmonetary rewards as valuable.

Compensation Pay provided by an employer to an employee for services rendered (i.e., time, ef- fort, and skill). Compensation comprises four core elements:

• Fixed pay: Also known as “base pay,” fi xed pay is nondiscretionary compensa- tion that does not vary according to performance or results achieved. It usu- ally is determined by the organization’s pay philosophy and structure.

• Variable pay: Also known as “pay at risk,” variable pay changes directly with the level of performance or results achieved. It is a one-time payment that must be re-established and re-earned each performance period.

Exploring the Key Areas 9

• Short-term incentive pay: A form of variable pay, short-term incentive pay is designed to focus and reward performance over a period of one year or less.

• Long-term incentive pay: A form of variable pay, long-term incentive pay is de- signed to focus and reward performance over a period longer than one year. Typical forms include stock options, restricted stock, performance shares, performance units, and cash.

Benefi ts Programs an employer uses to supplement the cash compensation that employees receive. These programs are designed to protect the employee and his or her fam- ily from fi nancial risks and can be categorized into the following three elements:

• Social Insurance • Unemployment. • Workers’ compensation. • Social Security. • Disability (occupational).

• Group Insurance • Medical. • Dental. • Vision. • Prescription drug. • Mental health. • Life insurance. • AD&D insurance. • Disability. • Retirement. • Savings.

• Pay for Time Not Worked: These programs are designed to protect the employee’s income fl ow when not actively engaged at work. • At work (breaks, clean-up time, uniform changing time). • Away from work (vacation, company holidays, personal days).

Work-Life A specifi c set of organizational practices, policies, programs, plus a philosophy, which actively supports efforts to help employees achieve success at both work and home. There are seven major categories of organizational support for work-life ef- fectiveness in the workplace. These categories encompass compensation, benefi ts, and other HR programs. In combination, they address the key intersections of the worker, his or her family, the community, and the workplace. The seven major cat- egories are:

• Workplace fl exibility. • Paid and unpaid time off. • Health and well-being. • Caring for dependents. • Financial support. • Community involvement. • Management involvement/culture change interventions.

(continued)

10 Everything That Employees Value in the Employment Relationship

Performance and Recognition

Performance A key component of organizational success, performance is assessed in order to understand what was accomplished, and how it was accomplished. Performance involves the alignment of organizational, team, and individual effort toward the achievement of business goals and organizational success.

• Performance planning is a process whereby expectations are established link- ing individual with team and organizational goals. Care is taken to ensure goals at all levels are aligned and there is a clear line of sight from perfor- mance expectations of individual employees all the way up to organizational objectives and strategies set at the highest levels of the organization.

• Performance is the manner of demonstrating a skill or capacity. • Performance feedback communicates how well people do a job or task com-

pared to expectations, performance standards, and goals. Performance feed- back can motivate employees to improve performance.

Recognition Acknowledges or gives special attention to employee actions, efforts, behavior, or per- formance. It meets an intrinsic psychological need for appreciation for one’s efforts and can support business strategy by reinforcing certain behaviors (e.g., extraordi- nary accomplishments) that contribute to organizational success. Whether formal or informal, recognition programs acknowledge employee contributions immediately after the fact, usually without predetermined goals or performance levels that the employee is expected to achieve. Awards can be cash or noncash (e.g., verbal recogni- tion, trophies, certifi cates, plaques, dinners, tickets, etc.). The value of recognition plans is that they:

• Reinforce the value of performance improvement. • Foster continued improvement, although it is not guaranteed. • Formalize the process of showing appreciation. • Provide positive and immediate feedback. • Foster communication of valued behavior and activities.

Development and Career Opportunities

Development A set of learning experiences designed to enhance employees’ applied skills and competencies; development engages employees to perform better and leaders to advance their organizations’ people strategies.

Career Opportunities A plan for employees to advance their own career goals and may include advance- ment into a more responsible position in an organization. The organization sup- ports career opportunities internally so that talented employees are deployed in positions that enable them to deliver their greatest value to their organization. Development and career opportunities include the following:

• Learning Opportunities • Tuition assistance. • Corporate universities.

FIGURE 1.5 (Continued)

Exploring the Key Areas 11

• New technology training. • Attendance at outside seminars, conferences, virtual education, etc. • Self-development tools and techniques. • On-the-job learning; rotational assignments at a progressively higher level. • Sabbaticals with the express purpose of acquiring specifi c skills, knowledge,

or experience.

• Coaching/Mentoring • Leadership training. • Access to experts/information networks—association memberships, atten-

dance and/or presentation at conferences outside of one’s area of expertise. • Exposure to resident experts. • Formal or informal mentoring programs; in or outside one’s own

organization.

• Advancement Opportunities • Internships. • Apprenticeships with experts. • Overseas assignments. • Internal job postings. • Job advancement/promotion. • Career ladders and pathways. • Succession planning. • Providing defi ned and respectable “on and off ramps” throughout the ca-

reer life cycle.

An Integrated Total Rewards Strategy

Culture Culture consists of the collective attitudes and behaviors that infl uence how indi- viduals behave. Culture determines how and why a company operates in the way it does. Typically, it comprises a set of often unspoken expectations, behavioral norms, and performance standards to which the organization has become accus- tomed. Culture change is diffi cult to achieve because it involves changing attitudes and behaviors by altering their fundamental beliefs and values. Organizational culture is subject to internal and external infl uences; thus, culture is depicted as a contextual element of the total rewards model, overlapping within and outside the organization. Source: Schein, E. “Organizational Culture.” American Psychologist 43, no. 2 (Febru- ary 1990): 109–19.