New Rules for Reward in 2018: Q&A with Korn Ferry Hay Group’s Tom McMullen
A friend of mine works for a real estate firm in Boston. Although the company is known to be traditional and bureaucratic, they’ve never had much trouble with recruitment because of name recognition in the industry. But in 2018, it’s a totally different story.
My friend told me her team recently posted an entry-level job that a few years ago would have garnered hundreds of applications. They only received two resumés. Why? This company has horrible Glassdoor ratings and is widely known to low-ball candidates.
Whether we like it or not, this is the era we live in. Competition for talent is fierce and companies will either adapt or go extinct.
We recently spoke to Tom McMullen, senior client partner at Korn Ferry Hay Group, to get his views on what it takes to attract and retain talent today and how CHROs and CEOs are rethinking the ROI they get from traditional compensation strategies.
If you’d prefer to listen to our interview, check out part one of our WorkHuman Radio podcast with Tom, embedded in the audio player at the top of this post.
Globoforce: Let’s start with a little bit of background on what you do at Korn Ferry Hay Group.
Tom: I’m a senior client partner in our rewards and benefits practice and I work with clients on their broad-based rewards, which is anything that an organization provides its employees of perceived value, including base salary, incentives, benefits, and non-financial rewards. I help clients develop reward strategies and design for specific programs.
We do program audits and market benchmarking, as well as help clients with administering, communicating, and implementing reward programs. I spend a fair amount of my time with manufacturing and consumer products companies, as well as a few not-for-profits. In addition to that, I also have a role within Korn Ferry of doing rewards and benefits. I lead our research, our thought leadership, and some of our solutions development as well.
Globoforce: When it comes to companies attracting or retaining talent, what advice would you give a company that’s struggling in that area, especially in this market?
Tom: Some might argue there’s still some underemployment going on – people in part-time roles who really want full-time roles, for example. But relatively speaking, it’s a very robust economy for job-seekers. That presents challenges for organizations. Companies need to win at both the first moment of truth and the second moment of truth with their employees, to borrow a phrase that I see consumer products companies using.
Winning at the first moment of truth is a competitive compensation and benefits program. There are few things that an aspiring employee can compare and contrast between organizations, and the rewards package is a key one.
You don’t need to be one of the top payers, but you definitely need to be in the mix. A lot of organizations target around median, but we find a lot of companies don’t necessarily have a good feel for what their competitive posture is. If you say you want to pay median, are you actually paying that? Are there gaps in certain parts of the organization? What do your employees think about the pay program? What are their perceptions of effectiveness and fairness? Does that vary in different parts of your organization, say between executive, managers, and support staff? Do employees understand the value of what you’re offering them?
There are a lot of companies that have good stories and competitive packages, but they don’t do a great job communicating that value to employees. So there’s an opportunity there.
Companies also need to win at the second moment of truth. What makes the employee who’s already joined your company wake up and want to work for you, as opposed to another company, each and every day? Are they willing to pick up a call from a recruiter?
What we find in our research and our experience with clients is winning at that second moment of truth is more about the non-financial rewards. While a competitive compensation and benefits program is relatively more important to get someone into an organization, it’s the non-financial rewards, things like the organizational culture, leadership, the opportunity to do interesting and challenging work, and recognition are key elements to retain people.
In fact, the number one key to retaining talent is career development. Do your employees feel good about not only the job that they’re in now, but their potential for future job opportunities within your organization? We find career development opportunities, or lack thereof, is the number one reason why employees leave organizations, primarily in the management and professional ranks. The psychologist (Frederick) Herzberg said, “If you want someone to do a good job, you’ve got to give them a good job to do.”
The content of the job should be interesting and provide appropriate stretch and autonomy. The culture and climate in which people are doing the work should be fun. The company should enable and support their employees for success, which means giving the right kind of resources, feedback, clarity, and direction.
Globoforce: So it’s more than just the package you offer when they first come on board, but continuously evaluating and making sure you’re communicating the value you’re offering?
Tom: That’s right. A competitive compensation and benefits program gets you a ticket to enter the race, but to win that race, it’s much more about all of the non-financial rewards. For key talent, making sure compensation is competitive is absolutely important, but more and more, all the other non-financial rewards are the things that year in and year out, in good times or bad times, are the real differentiators for retention of talent.
Globoforce: Last time you were on our blog, you talked about companies’ evolving pay practices. What changes have you seen since in the way companies are approaching things like variable pay and pay for performance?
Tom: It’s been about 10 years since the economy cratered due to the financial bubble. Although I don’t like the term too much, I think we’re in a new normal. The last decade has been somewhat of a wake-up call for both employers and employees in terms of moderating expectations.
We’re seeing C-Suite executives and CEOs are quite willing to pay for performance, but only if they get that performance. We’ve seen continued emphasis on variable pay programs. We’re almost at a point of saturation, in that most of the employee groups eligible for those pay programs are already participating in them. But we’re definitely seeing attention paid to making sure we’ve got the right metrics in place.
A lot of companies that may have had one-size-fits-all programs in terms of the performance metrics in these variable pay programs have started to segment and differentiate a bit. There’s a lot more emphasis on communication and measuring effectiveness than ever before. It’s about tightening up the linkages between pay and performance, ensuring we’ve got the right metrics and design mechanics.
I’ve heard more frustration with base salary increases and executives feeling that they’re not getting as much ROI on those. It’s kind of a throwaway of the 2.5-3%. So we’re hearing more executives talk about ways to make that investment on the base salary go further. And if that’s maybe providing more upside differentiation to the true high performers, that’s definitely being looked at.
There have been some big-name companies that have scrapped their performance rating processes, which has historically driven short- and long-term pay decisions. A lot of CHROs and CEOs have become frustrated with the compensation tail wagging the performance-and-development dog – a sense that in some companies employees and managers get overly fixated on the rating for compensation purposes. And managers maybe have lacked some intestinal fortitude in making the right performance calls because they might be conflict-avoidant.
So we’ve seen some companies say, “We’re going to scrap the ratings. They’re a bit more trouble than they’re worth. We’re still going to differentiate pay, but we’re not going to have this formulaic relationship between the rating and pay.” So that’s presented some new challenges and new opportunities.
I think getting rid of a performance rating makes sense; it puts more of the emphasis on the performance discussion and continuous dialogue. But a majority of companies have made a huge investment in their performance rating and performance management process, and we’re seeing continued efforts to retool that investment. They are asking things like, “Are the metrics we’re assessing performance against the right ones?” It’s about competency assessment versus outcome assessment.
Stay tuned for part 2 of our Q&A with Tom, where we discuss the business impact of recognition, the risks of pay inequity, and why we need more transparency in pay practices.
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