Rewarding

Success

“ The ‘World’s Most Admired Companies’

understand how to get a better return
on every dollar spent on reward.
”
 Hay Group FOCUS
Corporate Reputation

Rewarding Success About the survey

Each year Hay Group partners with Fortune magazine to identify
the ‘World’s Most Admired Companies’ and to find out what
Corporate reputation is based on more than financial differentiates them from the rest. This year we looked at
performance. Effective reward strategies are just one of the the approach they take to managing their substantial
key factors that drive organisation success. Hay Group’s Emma investments in employee reward. Hay Group in Australia
Walch, Wendy Nicholls and Iola Goulton look at how reward and New Zealand replicated the study locally, focusing
strategies in Australia and New Zealand stack up against the on fifteen top listed Pacific companies.
‘World’s Most Admired’ .

organisation objectives, thus ensuring Being more rewarding

that everyone is focused on meeting these
key strategies. With payroll such a large In the Pacific based survey, 46 per
component of budget, organisations cent of those surveyed strongly agree
that their company links reward with
H ay Group is able to peel back the
layers of the world’s best performing
companies in its annual survey of the ‘World’s
So what are the ‘World’s Most Admired
Companies’ doing to ensure a return on
their significant investments in reward?
must maximise their reward investment,
rather than treating it as a cost. The organisation performance. This compares
to 56 per cent in the global ‘World’s Most
‘World’s Most Admired’ understand how
Most Admired Companies’. The findings are to get a better return on every dollar Admired’ survey, indicating that when the
clear. These companies are innovative and Winning reward strategies spent on reward and they also invest in organisation is performing well employees
develop quality products, they are ‘employers communicating the reward strategy to have been rewarded for their contribution.
In 2008, when Hay Group closely
of choice’ and their organisational examined the reward strategies of the managers and employees. This helps avoid Both the ‘World’s Most Admired
strategies are achieved by effectively ‘World’s Most Admired Companies’, it the expectation gap, where employees Companies’ and those surveyed in the
developing and rewarding employees. found that those at the top of the list become disgruntled because they do not Pacific aim to target median fixed pay as
They continuously outperform their peers understand the importance of linking understand the link between performance the starting point for a reward strategy,
in the short, medium and long term. their reward strategies with overall and reward. that is the point in the market where
Hay Group’s global evaluation found 50 per cent of organisations pay more in
Table 1: Annual average total shareholder return of ‘World’s Most Admired’ base salary, superannuation and benefits,
that there are three critical factors to an
and S&P 500 and 50 per cent pay less. The strategy is
effective reward strategy.
Most Admired S&P 500 to use variable pay – short and long-term
1. Measuring the return on investment in incentives – to be competitive and to
reward. ensure that employees are focused on
One year 16.8% 5.5%
delivering organisation objectives.
2. Ensuring the design is linked to and
Three years 14.5% 8.6% supports the overall organisation If this is the desired target, what happened
objectives and individual in practice?
Five years 17.1% 12.8% performance.
The Pacific survey found that the
3. Implementing the reward strategy companies surveyed are on average
Ten years 10.1% 5.9% through effective communication. four per cent below the fixed pay median

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Corporate Reputation

The organisation monitors the return on investment of

Outputs not inputs the reward program?

The ‘Dilbert’ approach: the boss clarifies that after analysis, 70%

employees are no longer the most important asset. They are 60%
64%
eleventh – right behind paperclips. 50%

Company leaders and human resources managers may agree 40%

that intangible elements of reward such as work-life balance are 30%
important, but this does not always hold true for line managers.
20%
Hay Group still hears comments like, “but what if I need some
numbers analysed by 5pm and the analyst went home at 4pm?” 10% 13%
Modern laptops and broadband connections mean work can be 0
World’s Most Australia/
done in more places than just the office (and incidentally, if the Admired New Zealand
work really needed to be completed by 5pm, why did the manager Yes
wait until after 4pm to request the analysis?) Managers need to
focus on accountabilities and outputs, not inputs in the form of
Successful implementation in local they could, so corporate strategy is being
hours in the office. organisations relies on: diluted – and hence ‘lost in translation’.
1. Linking the reward strategy to the Furthermore, Hay Group’s survey
overall organisation strategy, found that organisations in Australia
and New Zealand treat reward as a cost
of the general market for non-executive that have a positive effect on employee 2. Differentiating reward, and
rather than an investment. Reward
staff. When short-term incentives are engagement. The ‘World’s Most Admired 3. Reward communication. effectiveness is a key driver in ensuring
included, the Pacific organisations pay at Companies’ also view these intangible employee engagement and delivering
or above median, confirming that bonus rewards as important elements of the 1. Linking reward: getting lost in organisation strategy and is, therefore,
payments are above market rates. These reward strategy. translation: an important investment. The majority
same companies have a more generous of locally surveyed organisations (87 per
How can Pacific organisations One of the most important findings of
pay practice for senior managers and cent) do not measure the effectiveness
improve? the local survey is that only one fifth of
typically pay three to five per cent above of their significant reward investment.
Australian and New Zealand companies
the median of market for fixed pay and The ‘Most Admired Companies’, whether This is surprising given the due diligence
believe there is a strong link between
10–12 per cent above when incentives are they are in the Pacific or not, have reward undertaken by many organisations on
their organisation strategy and their
included. designs that are largely aligned with small procurement purchases!
reward strategy. This suggests that human
Leading organisations in Australia and each other. How the reward strategy is resources (HR) departments in Australia In order to drive organisation
New Zealand agree that reward is more implemented, is where a gap opens up and New Zealand are grappling with how effectiveness, companies and more
than just tangible take home pay. Career between local and overseas companies. to translate and cascade their organisation specifically CEOs and HR, need to
development, work-life balance, education No matter how well a reward strategy objectives and strategies into their reward ensure there is alignment between the
and training, and culture/climate are is designed, it is ineffective if it is not programs. Reward programs are not organisation strategy and reward, and then
perceived to be important rewards properly implemented. supporting corporate strategy as well as measure the return on reward.

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2. Differentiating reward: the tall poppy objectives with performance expectations

Corporate Reputation

syndrome and understand what constitutes good

Peter principle The ‘World’s Most Admired Companies’
performance. If CEOs and HR can
resolve this challenge, they will get better
The so-called ‘Peter Principle’ refers to the much-maligned practice of pay their best performing staff up
returns on investment for their reward
to twice as much as their average
promoting people above the level of their ability. Too many Pacific spend.
performing employees. Australian
organisations award unsuitable promotions, indicating the Peter and New Zealand companies do 3. Communicating reward: no secrets
principle is alive and well in the region. It is a virtually guaranteed way not differentiate as significantly in
recognising good performance. Half the Communication is not simply
of ensuring the business of the future achieves no more than average about explaining the reward process.
Pacific organisations surveyed do not
performance! sufficiently differentiate between average Organisations need to be able to explain
and superior performance. This may be a and interpret the reward strategy and
symptom of the economic and corporate HR needs to be active in communicating
boom. Given the virtual full employment the underpinning reward philosophy to
of Australia and New Zealand in recent managers and employees.

“ In order to differentiate reward,

companies need to align organisation
objectives with performance
times, companies have been forced to
pay more for sub-standard performers
just to have someone to do the job.
Pacific organisations need to be aware
Eighty-two per cent of the ‘World’s
Most Admired Companies’ regularly
reinforce their reward philosophy
through communication with employees,
that although this keeps positions filled, compared with only 40 per cent of
expectations. it creates discontent among the higher Pacific organisations. This is largely

”
Significant variation in the frequency of promotions
performers. The risk is that well-paid
average performers will stay (because
they are not going to get more money
elsewhere) and high performers may
choose to leave.
achieved through communicating what
the organisation strategies are, how the
reward strategy aligns, what the company
means by total reward, and how
between superior and average performers employees need to perform to maximise
90% their reward opportunity.
It is not only the salary differential that
80% 86% is impacting high performers but also the Managing the communication
70% fact that less than half of leading Pacific
companies promote superior performers Managers play a critical role in reward
60% more frequently than average performers. implementation because employees
In contrast, the ‘World’s Most Admired trust the information from their line
50%
Companies’ agree that 86 per cent of managers. Managers also have most
40% 46% promotions go to superior performers. influence over the intangible rewards
This implies that half the Australian and an organisation provides and it’s often
30%
New Zealand companies are at risk of intangible rewards that are the primary
20% losing their superior performers because vehicles in attracting and retaining talent.
10% they do not differentiate pay increases, Pacific organisations can achieve
and because they promote average greater returns on investment through
0
World’s Most Australia/ performers. the role line managers play in reward
Admired New Zealand management. Currently, the majority
In order to differentiate reward,
Agree of Australia and New Zealand
companies need to align organisation

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organisations surveyed do not include clarifying how employees contribute to

Corporate Reputation

Reward philosophy is regularly reinforced in line management when determining organisational objectives and determining
communication with employees
their organisation reward strategy. Hay the standards of performance needed to
90% Group found that 70 per cent of these achieve those objectives.
80% companies claim that managers do not
82% Why communicate to employees?
understand the concept of total rewards
70% (that is financial and non-financial Communication of the reward package
60% programs). Therefore, it is not surprising to employees is essential for successful
that they are not implementing and implementation. It ensures employees
50% communicating this important concept. realise the full value of the total reward
40% Given the importance of the trust being offered and that they can make
40% relationships with their staff, managers a fully informed decision if they have
30% need to be better informed, educated another job offer. Only 27 per cent of
20% and prepared to ensure achievement of Pacific organisations surveyed agree
organisation objectives. that their employees understand and
10% appreciate that the company’s reward
The Pacific survey results also highlight
0 strategy consists of both financial and
World’s Most Australia/ HR’s perception that line managers are
non-financial forms of reward. This is
Admired New Zealand not effective at planning, reviewing and
significantly lower than the ‘World’s
Agree coaching for performance. Only 13 per
Most Admired’ survey, where 74 per cent
cent of local respondents agree that
of companies agree with the statement.
managers provide clarity for employees
to ‘see’ how their efforts contribute Additionally, almost 80 per cent of the
to organisational success, compared ‘World’s Most Admired Companies’
with 60 per cent of the ‘World’s Most provide employees with total reward
Admired’. This is a significant concern statements, summarising the cash value
for local organisations as Hay Group’s of tangible elements of reward and
research identifies clarity as the element communicating some of the intangible
Reward philosophy Direct
and strategy most critical to organisational climate. elements. Only 40 per cent of Pacific
communication
with line Encouraging discretionary effort means companies surveyed follow this practice.
manager

Project/program
launch Reward Program Total reward
communications statements Sending the wrong message
Communications
The sales representatives in a manufacturing company were all earning more
than their target incentive payments, yet the company was making a loss.
Senior leadership Reward policies Why? Incentive payments were based solely on sales volume, so the sales
reinforcement of and
key messages procedures representatives were undercutting the competition on the basis of cost in
order to sell more products and earn a higher incentive. They undercut the
price so much that they were selling products at a loss.

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If Australian and New Zealand translation. Companies are not telling a

Corporate Reputation

companies improve reward compelling story of how organisation and

communication, their reward strategies reward priorities relate to each other, and
will be effectively implemented and both need to ensure better alignment.
managers and employees will understand
Although local organisations have
the value of total rewards.
designed reward strategies that have
Playing catch-up a similar reward mix to those of the
‘World’s Most Admired Companies’, our
The key lesson for many Australian and Pacific survey highlights that they should
New Zealand organisations when it be doing more to differentiate reward for
comes to reward is that they are already higher performance.
‘behind the eight ball’ because the overall
organisation strategy is being lost in Local companies need to develop and
execute a reward communication strategy
for all employees. They should promote
a ‘total reward’ view to better leverage
non-financial rewards and maximise the
Individual needs involvement of line managers in reward
A client operating a call implementation and communication.
centre in a highly competitive Addressing these issues will ensure that
labour market was facing the leading companies of Australia and
New Zealand are one step closer to
high employee turnover. outperforming their peers in the same
It produced total reward way that the ‘World’s Most Admired
statements for all employees Companies’ have achieved this globally. „
and introduced a flexible
benefits scheme, allowing
employees some choice over Communicate, communicate, communicate!
the balance between cash, The best-designed reward strategy can still fail without effective
benefits and holiday. Turnover implementation. Communication is the key.
dropped dramatically once
employees understood the „ Develop a communication strategy that makes it easier to link
full value of the package they reward and organisation objectives.
received and were able to „ Consider key messages, messengers, mediums and audiences.
personalise parts of it to their
„ Engage line managers – early and often.
individual needs.
„ Start using total reward statements clearly articulating the value of
tangible benefits and the range of non-financial rewards offered.

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