In our last post we introduced you to the Seven Step Compensation Diet – to strengthen the internal value of company reward programs while dampening the upward spiral of your labor costs.

Our 1st step focused on the need to identify the organization’s reward challenges (what must be changed) before beginning the effort to establish corrective action plans.  Now that we have taken a look at ourselves in the mirror and acknowledged the current state of flab and flaws we need to move forward to the next stage and start developing practical solutions.  We have to start the diet.

Step #2: Develop a Compensation Strategy

Solutions rarely arrive by whimsy or happenstance, except in popular fiction. In the real world they are the result of planning and forward thinking.  The same applies when the need is to improve your reward programs.  You begin this process by laying out in your mind the general theme of how you plan to reward your employees.  Then you word-smith clear and precise statements that describe your beliefs, and around which you will design, administer and communicate your reward programs.

How important is an effective reward strategy?

• Helps guide and inspire the workforce

• Provides specific, motivating direction for connected actions

• Identifies the focal points for your programs

• Positively brands the company and helps recruit better employees

Whether you choose a formal or informal approach (back of an envelope to a formal document posted on the wall) you should map out in broad terms a vision of how the Company should reward employees.  There is no need to be fancy here, but your series of statements should mark your organization as an advocate of certain Human Resource principles (pay-for-performance, competitive salaries, focus on internal promotions vs. hire, etc.) – to be communicated frequently, be easily understood and viewed by your candidates and employees as credible (trusted).

How does this help?  Like using a Carb counter or a calorie guide, when setting out the guideposts of your reward philosophy you establish critical “do’s and don’ts” and openly communicate your principles.  The organization plants a stick in the ground.  Be careful though, as this is something for both you and your employees to point at – for standardization, consistent treatment and, of course, precedents going forward.

Many companies are reluctant to formalize a transparent strategy (worries over gaining management consensus, strategic effort and required commitment to results).  Others equivocate and muddy the message through generic wording, lack of specific design elements and the look and feel of everyone else.  That result comes across like a vague Mission Statement; broad, aspirational phrases like market leader, shareholder value, supplier of choice, leading edge technology, etc.  Such prose is immediately forgotten by everyone.

Anecdotal examples to illustrate the difference of broad vs. specific:

• We will be market driven; market competitiveness will be given priority over internal equity

• We believe it’s important to share the cost of benefits with employees

• We will provide employees with the opportunity to earn above average compensation for above average performance

• Our compensation and benefit programs will be designed to be competitive within our industry and revenue size

• We reward employees on a pay-for-performance basis; general adjustments are to be avoided

At this early stage of designing reward program transformation you should ensure that senior management is not only supportive of your strategies, but engaged in achieving the vision.  You will need this air cover for the tough decisions and passive resistance to come.  If you cannot count on active and public support, it would be best if you stop your dieting plans here.  You either walk the talk or you sit down.

And yet, you still ask, what if we go without?

• Your largest single company expense would be left without a guiding principle

• Without a governing theme reward costs will rise at a greater rate than planned or desired

• Inconsistent or possible contradictory messages will continue to create difficulties and expense

So, what’s it going to be?

It is an easy thing to lead an organization when the good times are rolling, but during a recession – when challenges assail you from every direction – not so much.   To succeed, to lead under these circumstances will require not only possessing a particular series of technical and behavioral skill sets but the ability to apply them as well.  Effective cost cutting has become a business priority, as well as the imperative to continuously create more efficiency in company operations.  You need to trim down as well as trim back, but in a managed fashion that will strengthen your organization for the future.

When it comes to Human Resources and the management of your payroll dollars, you need to cut the fat and tone the muscles; you need to go on a diet.

In your personal life the decision to begin a weight loss / trim down regimen typically means that you have recognized a problem with your current life style and have committed to 1) stop certain negative-reinforcing actions (eating the wrong foods) and 2) instill a sense of discipline to follow new positive-oriented behaviors (portion control and exercise) that would lead you to a healthier tomorrow.  In a similar vein companies facing a legacy of wasteful spending and misused employee rewards require the same discipline to curtail ruinous business practices and embrace the need for new thinking.

In order to rectify costly and damaging practices that have built up and ingrained themselves over time HR management will need to change the manner in which they reward employees and exercise more prudent behavior – as if the funds came from their own pocket, versus a bottomless well or the company’s money tree.

So how do you do this?  Where do you start?  I suggest that if you follow the Seven Step Compensation Diet you will develop a more effective and efficient HR organization, one that maximizes employee reward dollars while keeping a close eye on the company’s business objectives.

Today begins a series of Compensation Café posts that will describe each of the seven steps your organization should take to turn your pay practices around.

Step #1: Look Yourself in the Mirror

People begin a diet because they need to.   The damning evidence stares back at them in the morning mirror, forcing an acknowledgment that something must be done.

Management and HR professionals face a similar wake-up call as employee-related problems raise their troublesome heads and demand attention; payroll costs grown out of control, an increasing turnover of key talent, lower productivity or perhaps evidence of worsening employee morale.  Something is damaged or broken within the organization, economic and human factor pain is being felt and the need to address the issues has become critical.

Sad to say though, that it’s usually a crisis springing up out of nowhere – not timely self-appraisal – that forces action to replace historic lethargy.  Advance warning for the unwary is a luxury that cannot be counted upon.

The likely sources of this pressing concern are systemic practices rooted in outdated or ill-monitored policies that have out-lived whatever usefulness they might have once claimed.  So ask yourself:

• Do you have an HR / Compensation policy manual?
• When was it last updated?
• Do employees / Managers read it / use it?

Or perhaps it is simply that senior management is shouting at you?

Whatever the catalyst, at this early identification stage you will have a sense of likely problem areas (i.e., out-of-date procedures, lack of standards, policy gaps, poor documentation, training issues, etc.).  Analyze the likely causes (the actions likely feeding the problem) and consider what practices or policies the organization should modify or stop outright, and what activities or programs you need to start.  Then write them down.  Identify those policies or practices that may be causing harm and need to be reviewed, and then which new initiatives would alleviate the problem and strengthen your organization.  You will need to focus on these weak areas, as such components of your pay program become the baseline for your future efforts.  Do not lose sight of them.

Knowing you need to take action is a big step, but only the first.

Next up – Step #2: Develop a Compensation Strategy