Compensation planning: 10 actions for 2010

Carving a new path going forward

The economy has forced just about every organization to examine compensation practices that previously went unquestioned and to make some difficult decisions. As thoughts turn to economic recovery and planning for 2010, organizations face another crucial decision: whether to restore cuts and changes to their compensation programs essentially reverting to business as usual or to carve a new path going forward.

Compensation decision 2010

Visit Compensation decision 2010 at www.mercer.com/ hcplanning2010 our interactive magazine in which Mercer experts from around the world address the top 10 questions that clients are asking us as they set their compensation agendas for 2010.

Mercer has compiled 10 for 2010, a list of 10 actions companies can take this year to enhance the prospects of a successful compensation strategy in 2010. By success, we mean designing and implementing a broad-based compensation program that aligns with current business strategy, is affordable and sustainable, drives productivity, engages key talent and minimizes the chance for pay inequity. Use 10 for 2010 to launch discussions with your Mercer compensation consultant and your HR and finance colleagues to help formulate your compensation agenda for 2010.

4 1. Reexamine your total rewards strategy to ensure alignment with q

business strategy.
n

Ensure your compensation program is considered holistically to include career development, training and other intrinsic work factors (for example, work-life balance, etc.). Focus your practices and plans to retain mission-critical talent and reward the talent most responsible for creating value for your organization. Use analytics to support human capital decision making; combine multiple sources of financial and HR data from systems, surveys and external benchmarks into a single view to help track, measure and monitor internal and external workforce trends and reward program effectiveness.

4 2. Use market compensation data responsibly. q

n  Balance

internal affordability with being market competitive during this time of financial unrest. aggregate base-pay increases, including those for participants that froze salaries, if you are concerned about the overall labor market; if you are concerned about a specific peer group, then use the actual average increase for that group. multiple peer groups, particularly those for whom you complete for talent and for business. Be aware of how survey samples may differ from prior years.

n  Use

n  Consider

4 3.  q Reinvest your compensation budgets with purpose allocate to key

workforce segments.
n  Determine

the distinct employee groups or workforce segments (for example, business units, job functions, geographies) that are most critical in creating value for your organization. the reward types and opportunities for these performance drivers. your line managers to understand how segmentation helps them deliver better business results.

n  Differentiate

n  Help

4 4. Make pay for performance meaningful. q

n  If

your business has fundamentally changed, change or introduce new performance measures to align them with your new business strategy. targets that are meaningful (an outcome that results in corporate value) and relevant (a set of results that appropriately reflects short- and long-term performance, and individual or team contributions). Use absolute and relative performance measures. Create a performance mindset by:

n  Select

n n

Securing line managers understanding and buy-in early Investing in educating key employee groups Developing and delivering an ongoing communication strategy

4 5. Rethink the mix of compensation vehicles. q

n  Demonstrate

a clear line of sight between employee contributions and long-term results; if this is not possible, reduce broad participation in your long-term inceptive plan. balance between pay vehicles, performance time horizons and risk. excessive risk taking for certain employee groups by deferring a portion of the annual bonus award to see if the short-term wins really translate into creating enduring business value.

n  Ensure

n  Address

4 6.  q Consider which actions made as a result of the economic downturn

should stay in effect for 2010.
n  Dont

jump back into business as usual once you are prepared to reinvest in your human capital. Consider which strategies or tactics may remain in place, such as:
A  ssessing

the current degree of pay at risk and embracing more of a pay-for-performance culture Reassessing desired market positioning base pay increases only every two to three years as responsibilities change Segmenting your workforce to best allocate limited resources serious about improving your performance management program permanent with temporary or contingent workers to flex labor costs

M  aking

G  etting

B  alancing

4 7. Engage talent in other ways besides cash compensation. q

n

Create career paths to provide development opportunities. special project opportunities that elevate an employees corporate visibility and develop new skills that enhance employment security. your performance management program through manager training and technology to enhance processes and analytics. an employee communication plan to quell fears, minimize distractions and increase productivity.

n  Employ

n  Fine-tune

n  Implement

4 8. Clarify and communicate your employee value proposition. q

n  Reexamine

if your employee value proposition has changed perhaps your organization is keeping more pay at risk or using more temporary or contingent employees. the new value proposition, moving from tactical employee communications to more strategic total rewards discussions with employees. Equip managers for such discussions.

n  Articulate

4 9. Ensure against pay discrimination practices. q

n  Use

regression-based statistical analytics to uncover existing pay inequities and proactively manage any inadvertent consequences of workforce actions. identify and correct compensation, promotion and performance management practices that may cause risk. manager education and training regarding pay administration and diversity. to differentiate workforce segments as long as pay differences are nondiscriminatory.

n  Assess,

n  Improve

n  Continue

4 10. Develop an effective global compensation strategy. q

(If your organization is focused on facilitating talent mobility and reinforcing common organizational cultures and values )
n

Define an enterprise-wide global compensation strategy, not just at the executive levels. Establish strong governance at a global level and locate pay management as close to line management as possible. Consider the HR resources to make this all happen.

Contact Mercer
Mercer is a leading global provider of consulting, outsourcing and investment services. Mercers broad-based compensation consultants work with clients to design and implement practical, tailored solutions that strategically allocate total compensation resources, align with business strategy and link employee rewards to business performance. They do so by leveraging Mercers network of compensation experts from around the world, globally consistent methodologies, proprietary Web-based software tools and global data resources. To meet with a compensation expert, contact your local Mercer office or visit www.mercer.com/ hcplanning2010.

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