HomeBusiness DigestDe-commoditising remuneration through total reward

De-commoditising remuneration through total reward

WHEN something is a commodity it loses its distinctiveness, thereby reducing its ability to command premium value. Currently, as revealed by our survey of remuneration practices obtaining in the Zimbabwean workplace, remuneration is largely a commodity.

Reward is a fairly unfamiliar concept, let alone Total Reward. It is very rare in Zimbabwe to hear of reward and Total Reward.  Remuneration and compensation are more familiar. Remuneration emphasises monetary awards to employees. Compensation gives the impression that the employee is being paid for losing something valuable. Current thinking posits that an employee is rewarded for contributing to the success of the organisation.

Total Reward goes beyond monetary awards by deliberately embracing non-financial components and the quality of the climate in which employees work. Company reputation, quality of leadership and employee-voice are a few examples of non-financial components comprising the reward environment. That is the hard stuff, not soft as is popularly peddled in the business circles. Proof? Share price exceeds book value share price many-fold. That book value excess is made up of intangibles, which is another name for the erroneously dubbed “soft stuff”. Most importantly, when Total Reward is developed within the context of a Total Reward strategy, remuneration and the reward environment are aligned to deliver on the corporate strategy.

A strategy is a cunning game plan and not an off-the-shelf template gleaned from a business strategy “recipe book”. By being cunning, a strategy, by extension, a Total Reward strategy, reflects smart and innovative moves that stun competitors. Many organisations have reward programmes in place, but because they are not integrated, they deliver suboptimal value to business.

Recently, one blue chip insurance giant based in London was puzzled by the high rate of resignations by its top performers. The insurance giant was paying its employees in the upper quarter (or above the 75th percentile). Translated, this means their employees’ salaries were among the top 25% in the industry. Ironically, they were losing their high-calibre talent to lower-paying and smaller insurance companies. An audit of its reward practices showed that although high-performers were among the highest paid, the employee-repellant was apparently the organisation’s poor reward environment.

Our prognosis is that organisations that hire just the hand will be out-competed by those that engage heart, head and hand-no PR stunts. Just study our local bourse. The majority of counters that have been in the 90th percentile by market capitalisation in the past five years belong to firms that are known to have the three H’s approach to human capital management.

It has been said that in most cases people do not leave the organisation, but leave their managers, an allusion to flight of talent propelled by poor reward environments. One way I have been using over the years to make investments on the stock market has been to study the human capital policies of listed firms, assessing the quality of life of their front-line employees. My money went to those firms with strong and progressive human capital practices. The quality of life of employees of a firm is a strong indicator of the quality of leadership and its ability to optimise returns on investment in human capital, thereby unlocking stakeholder value. It makes sense to assess the health of the goose to ascertain its ability to lay golden eggs tomorrow.

Fat pay cheques only are no longer a sure-proof strategy for preventing talent leakages.
The drift of corporate governance towards greater disclosure of the remuneration of senior executives will definitely limit monetary rewards as an effective competitive weapon in the talent markets. Although recent research has shown that greater remuneration disclosure is followed by pay inflation, we strongly believe that the merits for disclosure far outweigh the unintended effects.
Total reward will be the game-changer in the talent markets.

Prior, the pay of senior executives was a closely guarded secret, but with King III, the size of the executive’s wallet will become a matter of public knowledge. As such, both local and foreign competitors will be assured of cheap but accurate information, which can be effectively used to win the ‘war for talent’. In a financially-distressed environment a Total Reward approach is an imperative as the scope to use financial muscle to power ahead in bidding for talent is very limited. The ‘war for talent’ will now be won through brain rather than brawn. Finance and finesse will have to meet in order to outwit and out-execute competitors in the talent market place.

We did a snap survey involving employees from a range of organisations to measure the pulse of employees on reward issues. Understanding  organisational  reward practices is what builds the employer-brand, setting it apart from other employers-what your employee strongly holds in mind and heart about you as an employer.

The findings are sobering. In terms of awareness of what constitutes simple remuneration none of employees surveyed thought that subsidised or free housing was part of their remuneration. To them remuneration is basic salary. It seems employers are failing to communicate the value of rewards they are offering. We calculated the total remuneration of one employee to help them see how much they actually receive from their company. Non-cash benefits, which did not reflect on the pay-slip, amounted to 80% of their basic pay, yet not recognised as an integral component of reward. Although this company has a range of attractive benefits, it appears to have a very poor reward and employer-brand communication strategy.

This organisation could easily lose a key employee not because of poor remuneration but due to poor reward communication, depreciating the employer-brand. Reward communication is becoming mainstream in human capital and reward strategy. Some of the employees surveyed indicated that they became aware, through hearsay that certain employees were participating in a profit-sharing scheme. However, they were not sure about the criteria for eligibility to participate in the scheme. This is a case of poor reward communication, potentially poisoning the employee climate. When an organisation fails to take care of the issues of the heart,”heart-aches” and “heart-attacks” occur, eventually manifesting as failure in the market place.

There is need for employers to move swiftly to de-commoditise remuneration through a unique employee value proposition translated into a business-aligned Total Reward strategy. The philosophical underpinnings of Total Reward resonate with the Zimbabwe’s cultural heritage of ubuntu or hunhu. Needless to stress that we should be ahead of other regions insofar as employer-branding is concerned. A case in point is our entrenched cultural practice of thanking a person for a job well done, manifested in the ever-popular praise poetry. When Harvard and Michigan, coin these very local concepts into terms such as recognition we stand in awe. Recognition is a hot topic at the moment. Shouldn’t the Zimbabwean business schools have been the ones leading the world on this?
Total reward is the new golden handcuff.

lReaders Forum: Do you think “when employees leave, they leave the manager not the organization?” Visit http://humancapitaltelescope.blogspot.com to share your thoughts.

By Brett Chulu

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