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Companies Not So Good at Aligning Business Strategies with Employee Rewards

"A balanced approach to total rewards - one that acknowledges the needs of the business, the changing environment, the aspirations and demographics of employees, the local culture, and the current and future cost constraints - is both essential and challenging," says research firm Mercer.

Less than one-third (32%) of companies said their total rewards and business strategies fully align, according to Mercer’s Total Rewards Survey.

The survey, released on May 19, examines the practices organizations are using to align compensation, benefits, training and career development with today’s business priorities. This survey found that more than half (56%) of organizations made a significant change to their total rewards strategy in the past three years.

“It is critical that companies’ rewards strategy aligns with its business strategy to achieve overall success,” said Steve Gross, senior partner in the Rewards segment of Mercer’s Talent practice.  “A balanced approach to total rewards – one that acknowledges the needs of the business, the changing environment, the aspirations and demographics of employees, the local culture, and the current and future cost constraints – is both essential and challenging.”

When asked what the most significant challenge of their overall total rewards strategy was respondents said that attracting and retaining the “right” was at the top of the list.   

Other important challenges include:

  • Gathering relevant market compensation data (74%)
  • Keeping rewards affordable (66%)
  • Communicating the value of rewards to employees (61%)

Ensuring pay for performance and performance differentiation (62%).

“As companies focus on the cost of their talent, attracting and retaining the ‘right’ employees and differentiating rewards for top performers are challenges that can be made easier by incorporating the use of workforce analytics,” said Mary Ann Sardone, partner in Mercer’s Talent practice and regional leader of the firm’s Rewards segment. “Additionally, incorporating offerings such as career development and work/life balance initiatives into total rewards strategies caters to the needs of Millennials in the workplace.”

Moving beyond pay as ways enrich the employee experience, employers are using:

  • Career progression (53%)
  • Healthy living/wellness (49%)
  • Recognition (45%)

Sourcing Talent and ‘Hot Jobs

Organizations that have operations in emerging markets tend to use a “buy” approach to talent more frequently than they do for their operations in mature markets, Mercer reports. Likewise, organizations use a “build” approach to talent more often for their operations in mature markets than they do in emerging markets. This practice is most evident for sourcing positions in top management, human resources and operations with at least twice as many organizations indicating they use a “buy” approach for filling these jobs in emerging markets compared to mature markets.

Regardless of the market, “hot jobs” – those jobs difficult to fill due to skill shortages and higher pay rates to attract and retain – include two within the STEM fields. Nearly two-thirds (65%) of organizations in the U.S. reported information technology as the leading function for hot jobs in mature markets, and almost half (44%) indicated both engineering and information technology jobs in emerging markets. 

“Recognizing critical workforce segments is a core component of a successful total rewards strategy, and focusing on specific job functions can mean the difference between attracting critical employees and watching them go to your competitors,” said Gross. “Companies that emphasize factors beyond pay that help retain critical employees, like career opportunities, work/life balance and effective communication will have a competitive advantage.”

The good news is that going forward, most organizations intend to maintain their investments across all offerings of their total rewards strategy. Mercer’s survey shows that approximately one-fourth of organizations plan to invest more in base salary increases, career development/management programs and training opportunities in emerging markets. Moreover, those organizations with operations in mature markets plan to invest slightly more in these offerings.

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