A standardized approach to salaries, bonuses, and benefits may be outdated. Instead, companies are beginning to seek a more personalized and holistic approach to rewards.

For decades, designing rewards programs was a relatively straightforward exercise of finding the right mix of compensation and traditional benefits, such as health insurance and vacation time. Today, however, companies are seeking to create programs aligned more closely with individual preferences and based more fully on an employee’s whole contribution to the team and the organization.

Deloitte research indicates that few companies are making this transition successfully. The overwhelming majority—91 percent—of companies still follow the conventional practice of conducting salary reviews only once a year, or less.¹ Even worse, organizations rate their rewards programs with a net promoter score of -15, and only 21 percent would recommend their programs to others. Many business and HR leaders are aware of the problem; only 6 percent of respondents to a Deloitte survey indicate their organizations are very effective at attracting talent, and only 8 percent say they are very effective at retaining it (Figure 1).

What is Wrong with Rewards Programs?

Today’s rewards programs are out of sync with employee preferences in three major areas:

Frequency. Employees respond favorably to compensation programs that provide raises, bonuses, or other incentives more often than the traditional once-a-year system. Companies have a strong incentive to implement these programs: A study by Globoforce finds that employees who receive regular small rewards, in the form of money, points, or thanks, are eight times more engaged than those who receive compensation and bonus increases once a year. Deloitte research shows that 20 percent of companies give workers performance ratings more than once per year, but only 9 percent adjust salary at that pace. Compounding the problem, most remuneration programs are inflexible and remain narrowly focused on experience and tenure.

Personalization. Organizations are missing an opportunity to better understand worker preferences and tailor a wider range of rewards to a more diverse workforce. Conventional programs remain primarily focused on traditional (on-site, on-balance-sheet) workers and standard benefits such as health insurance, sick leave, and overtime pay. Many exclude flexible schedules, development opportunities, recognition programs, and other incentives, particularly for contract or other off-balance-sheet workers.

While some first movers are shifting to truly personalized compensation, most companies are still struggling to customize and communicate rewards tailored to the individual. Only 8 percent of organizations in this year’s Global Human Capital Trends survey say their programs are “very effective” at creating a personalized, flexible solution. Just 9 percent of companies in a recent study report they use data and analysis to a “great” or “very great” extent to understand employee preferences.

Expectations. Most rewards programs are not seen as “fair.” At many companies, the process for deciding pay is considered political or arbitrary, which has a significant impact on retention and turnover. A lack of transparency compounds the problem: A study by Payscale found that employees who do not understand the pay process are 60 percent more likely to leave the organization.²

Topics such as pay for performance, pay fairness, and pay equity are not new, but today’s workers have increased expectations for transparency and flexibility and greater access to information, including salary data, via employer review websites.

Unconventional, Personalized Rewards

Companies that fundamentally revamp their rewards programs to make them more varied and personalized are seeing positive results. Some of these companies are taking creative approaches to achieve greater alignment among rewards strategy, individual preferences, and company goals.

Patagonia, for example, has an innovative compensation and rewards model that aligns with its culture and identity. It has adopted an unconventional approach to rewards that caters to employees’ lives both inside and outside work. This includes the provision of 26 three-day weekends per year, a surfing policy that allows employees to surf or exercise during work hours, and extensive family benefits, such as on-site day care to support parenting and breastfeeding. Patagonia strongly believes in hiring passionate and motivated people and has seen a rise in performance and productivity when they are rewarded accordingly. The company encourages employees to treat work as play and regards its own workers as the ultimate customers, so it places a special emphasis on how it treats them.³

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Today’s workforce, with its diverse needs and preferences, requires a flexible system that offers a variety of rewards and ways to tailor them to individuals. Employees today want a custom rewards experience that reflects how they live, work, and communicate—not a one-size-fits-all approach rooted in the past. Companies that can deliver such personalized rewards likely will be more effective in their efforts to attract and retain top talent and will be better positioned to gain a competitive edge.

—by Jeffrey Schwartz, principal, Deloitte Consulting LLP; and Erica Volini, principal, U.S. human capital leader, Deloitte Consulting LLP

July 30, 2018, 12:01 am

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