PIHRA Scope - Fall 2008 - (Page 15) PIHRA Conference Speaker 2008 ENGAGING Talent While Managing Pay Costs By Patricia K. Zingheim, Ph.D., and Jay R. Schuster, Ph.D. Schuster-Zingheim and Associates, Inc. A CEO said to her top HR leader, “We are pressed for cost management and return on workforce investment. I want you to adjust the emphasis of our human resource programs over the next 18 months to get more performance advantage from one of our largest expenses, the cost of employee pay.” The catalysts for this needed change were most likely increasing healthcare cost, bringing pressure on dollars available for pay adjustment budgets, and the reality of what it costs to deliver a quality workforce in competitive business times. HR leaders are challenged to engage the best people to not only stay with the organization but also add value to the measures used to evaluate performance at all levels. Regardless of any business slowdown, the best people remain in short supply, and research suggests their commitment to organizations is not as strong as most CEOs would like. Depending on the study, only 15 percent to 25 percent of any workforce is highly engaged and 50 percent are open to changing employers. Organizations are not well positioned to improve the total pay of all employees but must focus on the best performers who are essential during all economic times. This means not just freezing or reducing pay costs but fi nding a pay and rewards solution that is both attractive to high performers and cost-effective. VARIABLE PAY: ENGAGING AND COST EFFECTIVE Presently 80 percent of all U.S. organizations use some form of variable pay for nonmanagement employees. Variable pay is a cash award that does not automatically recur from year to year. Variable pay has become the “performance tool of choice,” and research shows it is the best and most proven HR investment an organization can make, most often returning at least two to four times the cost of incentive award payments in the form of improved performance as measured by incentive metrics. It is not only a high-value performance tool but also a powerful pay cost management tool. Why are most pay costs troublesome to a challenged organization when there is pressure to provide HR solutions offering a high return on investment (ROI)? Nearly every element of pay and benefits represents a fi xed cost to the organization except variable pay or incentives. And most of these are really not “fi xed” at all—rather they increase annually without regard to organizational or employee performance or the affordability of inflating workforce costs. Annual base pay adjustments for any reason leverage the cost of most employee benefits. Organizations vary workforce costs typically by reducing headcount, freezing base pay or cutting benefits. These actions create morale problems and may negatively impact the workforce members with high value in terms of skills, competencies and performance results if they are treated the same as employees who are less essential to organizational success. Another solution, improving productivity and efficiency so each employee is accomplishing more work, is important anytime; but as volume typically declines during economic downturns, organizations may not have the excess volume that enables per-person productivity to increase. Still another solution is to ensure that the workforce is managed effectively, for example, by managing overtime or reducing contract workers so per-person productivity improvements can occur with reduced work volumes. A more workable approach that focuses and rewards employees for achievement of important business goals is variable pay or incentives. Incentives, when properly designed, grant cash awards at the end of performance periods when goals are achieved or ENGAGING TALENT continued on page 16 Fall 2008 PIHRAScope 15 FEATURE © pressmaster. Image from BigStockPhoto.com http://BigStockPhoto.com
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