Hitting the Getting more bang ground running for your buck Page 2 Page 4View PointIssue 3 June 2010 Performing in uncertain timesGetting Engagement is the commitment employees feel towards their organization – their willingness to recommend it to friends and family, their pride in working for it, their intention to remain part of it, and, critically,engaged their willingness to go above and beyond the call of duty in its service. Engagement + Enablement = Performance But engagement alone is not enough to drive individual and organizational performance. Employees also need to be ‘enabled’ to channelHigh-performing organizations require discretionary their eﬀorts productively. This means they need the right tools to do their job – information,eﬀort by employees who are both engaged and enabled. technology, equipment, ﬁnance and other support – and the freedom to focus on their responsibilities without being distracted by procedural restrictions and non-essential tasks. “Organizations are emerging from recession It requires strong leadership, managementinto a tougher, more cost-conscious and accountability, strong performanceperformance-oriented world. It is clear that management, ongoing measurement, employees also needa return to ‘business as usual’ is unlikely. excellent communication and, last but not to be ‘enabled’ to ”Indeed, the new mantra is ‘do more with least, clear alignment between individual channel their eﬀortsless’. Firms are lean, and, if not exactly mean, targets and rewards with business objectives.concentrating their eﬀort and investment productivelyon those activities that will deliver the It’s a challenge, but it can be done,greatest returns. as some of Hay Group’s recent research shows. Three of our landmark studies – The World’sAt a time when both ﬁnancial and human Most Admired Companies (in conjunctionresources are at a premium, the discretionary with Fortune magazine), Best Companies foreﬀort of employees will be the most vital Leadership (with Bloomberg Businessweek) andcomponent in creating high-performing The changing face of reward – provide valuableorganizations. And in order to ‘go the extra insights and lessons for ﬁrms wanting to createmile’ employees need to be both ‘engaged’ their own high-performance cultures. In theand ‘enabled’. See panel. rest of this ViewPoint we examine some of the diﬀerent levers to create better engagement,As we highlight in this issue of ViewPoint as exempliﬁed by some of the world’sengagement alone will not drive leading organizations.performance; enablement is also critical.Embedding both into organizationalcultures is no easy feat.
2 ViewPoint I Issue 3 I Performing in uncertain times Contents World’s Most Admired Companies 2 Hitting the 6 The DNA of ground running successful leadership Building blocks Employees at the best companies are now more What essential building blocks do leaders need to be to engagement motivated and loyal than ever. successful in the future? 96 per cent of the WMACs 4 Getting more bang 8 Achieving more say their work conditions for your buck with less enable their employees to In uncertain times, reward ROI How Strategic Performance be as productive as possible is under the spotlight. Management can make (compared to 84 per cent the diﬀerence. of their peers). 96 per cent rate their organization as eﬀectively organized and structured Engagement: the business case Hitting the (85 per cent of peers). 92 per cent say they work innovatively, using new technologies or creative Nearly 70 per cent of the World’s Most Admired Companies (WMACs) say they are emerging from recession with ground running approaches to improve internal eﬀectiveness (73 per cent of peers). their employees feeling more 88 per cent have an loyal than before, compared to explicit employer brand just 50 per cent of their peers. The world’s top ﬁrms are poised to take advantage of economic (67 per cent of peers). The right kind of leadership transparent communication is key, employee engagement to bottom- 94 per cent say engagement recovery, thanks to employees who are more motivated and loyal and communication especially in adverse conditions. line outcomes, compared to just 94 per cent have a speciﬁc 58 per cent of their peers. deﬁnition of employee The WMACs say that providing creates competitive advantage, compared to 82 per cent of than ever before. How have they done it? clear leadership and direction is an “When things go badly economically, you have to communicate more, “We have identiﬁed the levers of engagement (79 per cent of peers). their peers. important part of their engagement not less. When executives climb employee engagement that increase As they emerge from the recession share ﬁve practices in common: Holding managers strategies. If employees are to into the bunker, it creates serious productivity here at our company, the world’s top ﬁrms are reporting ongoing measurement, the right execute eﬀectively on organizational morale problems throughout given our challenges, strategies 94 per cent report reduced accountable that their employees are more leadership, manager accountability, directions, they need to understand the organization.” and culture.” staﬀ turnover (67 per cent Employee engagement is the practical implications of what motivated than ever before, good communications and linking not viewed as HR’s exclusive Clearly, for the WMACs, employee of peers). they are being asked to do. They making them well positioned to engagement to business objectives. responsibility in WMACs, Linking engagement to motivation – and their ability to also need to be motivated by Did you take advantage of the recovery. where line manager responsibility business objectives translate it into action – is a critical And the reason, according to Ongoing measuring seeing how what they do ﬁts into 85 per cent cite fewer – at 86 per cent – is higher than If employee engagement initiatives sustaining force in tough economic the bigger picture, and having a know? performance issues Hay Group’s most recent research and monitoring in peer companies (76 per cent). are seen primarily as a way of conditions. Organizations that with Fortune magazine into the sense of purpose – the feeling that (72 per cent of peers). “What gets measured gets If organizations don’t make clear increasing employee satisfaction, follow the lead of the WMACs and World’s Most Admired Companies they are making a diﬀerence or managed,” as the saying goes, the role line managers need to they will have little impact. Instead, put people ﬁrst, in bad as well as (WMACs), is their focus on employee contributing to something larger and the research shows that play in engagement programs, people have to understand that good times, will be rewarded with 84 per cent see better engagement and enablement. than themselves – is a critical factor WMACs use engagement surveys managers may believe they are more motivated employees the kind of loyal and motivated customer relationships in engagement. The WMACs are experiencing more frequently and more too busy with their day-to-day drive higher levels of business employees who can drive (72 per cent of peers). eﬀectively than their peers. Organizations also need to performance. Seventy-one per cent greater levels of loyalty coming out responsibilities to play an active sustained performance. Ninety-eight per cent of WMACs demonstrate ﬁrm leadership and of WMACs say they successfully link of the recession than when they role. There is a danger that conduct surveys, compared that they are capable of executing The WMACs are just half as went into it, and they report far managers can see engagement with 81 per cent of their peers, on strategic objectives. Here clear, likely to have had layoﬀs and fewer redundancies, hiring freezes as an add-on activity, rather than hiring and pay freezes than and pay freezes than their peers while 27 per cent conduct surveys something that helps them more than once a year, compared achieve their core business Survey ﬁndings their peers during the past during the past two years. What’s two years. more, they are ﬁnding it easier to to 14 per cent of their peers. objectives. This is not conducive hire people, and are experiencing WMACs’ employee surveys also to fostering engagement among lower levels of frustration from seem to be more eﬀective in their teams. Nearly 75 per cent are ﬁnding generating action and change In 2009 a Hay Group cross-industry analysis The business case is even stronger than employees. They expect such “The managers who do the best Employees who aren’t enabled it easier to hire people than than those of their peers: they are of over 400 companies found that while that. Employee performance is 10 per cent results to translate into better at engaging their teams are having become frustrated, however they were two years ago more likely to act on the results organizations in the top quartile on higher in companies in the top quartile customer service and shareholder the least number of employee engaged they are. This amounts (57 per cent of peers). to improve performance in areas engagement demonstrate revenue growth on engagement than those in the bottom value than other ﬁrms are likely retention problems.” to a squandering of vital energy, such as customer satisfaction, 2.5 times that of organizations in the bottom quartile, employee retention is 40 per cent to enjoy. especially in a challenging for example. quartile, companies in the top quartile on higher and customer satisfaction is 71 per 44 per cent report lower But engagement is hard to get both engagement and enablement achieve cent higher. The corresponding ﬁgures economic environment, levels of employee frustration right, so how do they do it? The “We keep our eye on engagement revenue growth 4.5 times greater than those for organizations that have both high and could easily turn into than two years ago (31 per research showed that the WMACs – assessing it, acting on the results, in the bottom quartile. engagement and high enablement are active – and dangerous – cent of peers). being mindful.” 50 per cent, 54 per cent and 89 per cent. disengagement.
4 ViewPoint I Issue 3 I Performing in uncertain times The changing face of reward The changing face of reward continued “ The research Getting more bang their current priority is to grow profits, for your buck ” so their metrics largely remain ﬁnancial As companies move towards recovery, Hay Group research shows that return on investment in reward is under the spotlight. Show and tell So employers are starting to put far Fortune into The World’s Most Meet the However good the rewards employees receive, they won’t more eﬀort into communicating Admired Companies shows that appreciate them unless employers around beneﬁts, including through the best companies weave reward communicate their value. The survey showed that many the provision of total reward statements, and into segmenting program messages into the fabric of the organization, ensuring that core author their communications – and, messages are clearly communicated organizations recognize that most indeed, the beneﬁts they provide – and reinforced frequently, using employees don’t understand the by employee group. total reward statements and For its The changing face full value of their packages: they engaging line managers early of reward research, Hay Group look at base pay, and sometimes And communication is important and often. surveyed 236 organizations incentives, but rarely at pensions at a broader level too. The new across all sectors in 29 and other beneﬁts. What’s more, trends in reward strategies can only countries in Europe, Asia and diﬀerent groups of employees succeed if leaders and managers the Americas. It conducted value diﬀerent elements of reward clearly communicate the rationale face-to-face interviews diﬀerently: Generation Y will place behind them and the contextual primarily among HR a diﬀerent value on a pension than organizational strategy informing professionals, two-thirds of someone approaching retirement, them. Hay Group’s research with them directors. The research for example. was designed to gauge how reward policies and practices have changed as a result of the Top six pay-for- global economic downturn. Reward the right behaviors performance actions All this begs the question of the kind of performance organizations 1 Introduce diﬀerentiated As ever, reward is a key factor One of the key trends to emerge restructuring and often for are using variable pay not purely as are trying to drive. It was the emphasis on ﬁnancial performance reward structures where in driving performance. But as from Hay Group’s The changing limited or no incremental increase a cash ﬂow tool, but also to support that caused the recession in the ﬁrst place, and all Hay Group’s recent available rewards increasingly businesses wrestle with the twin face of reward research is the in compensation. their performance management research indicates a growing recognition by ﬁrms that performance go to the top performers and imperatives of containing costs as shift organizations are making strategy. In these organizations has to be long-term and sustainable, and driven, therefore, not just high potentials – those critical But companies aren’t keeping well as driving up performance, from a culture of ‘entitlement’, the challenge is to develop an by shareholder returns, but by returns to all stakeholders, not least to the survival of the business. these top performers engaged their challenge is to coax more from ‘paternalism’ and ‘comfort’, to one appropriate balance between society as a whole. purely through monetary rewards. 2 Build line management skills their employees without the help of a generous compensation strategy. of ‘performance’, and they are doing it through a much closer Employers understand the vital role short- and long-term incentives based on the nature of the role, But while companies aspire to having what Hay Group terms in setting goals, coaching Nick Boulter that elements such as clear career ‘responsible reward’ programs that drive this long-term sustainable performance and recognizing alignment of individual targets with many organizations increasing Managing director, Reward accounts for up to 70 per paths, global mobility and targeted performance, their current priority is to grow proﬁts, so their metrics and rewarding performance. and corporate metrics. the opportunities for long-term reward services, Hay Group cent of most companies’ costs, development programs play in remain largely ﬁnancial. While this is, to some extent, understandable, so being able to manage reward attraction, motivation and retention, incentive awards. it is at odds with the wider performance goals adopted by Fortune’s 3 Clarify deﬁnitions of Diﬀerentiate reward performance. costs better can help to boost and, as a result, they are increasingly While employers are paying Most Admired Companies, who augment ﬁnancial targets with measures In practical terms this is leading to proﬁts. Indeed, whereas reward taking a ‘total reward’ approach. unprecedented attention to the around long-term thinking, teamwork and building human capital 4 Balance individual and a greater diﬀerentiation of reward used to be the sole preserve of link between pay and individual and customer loyalty. enterprise targets for bonuses. based on individual performance, The research also revealed a shift compensation and beneﬁts experts, and the limited budget that is and corporate performance within But in the short-term, whatever goals companies set, they need it has become a top management towards more variable pay. This is their own particular organization, 5 Align individual targets to available is being put behind partly cost driven – organizations to ensure that their reward strategies recognize employees’ behavior overall strategy. issue. The CEO and board are now top performers, high-potential they are still using benchmarking and values as well as their contribution to the bottom line. They are with higher proportions of variable closely involved in order to ensure employees and those with scarce pay often have the ﬂexibility to to keep a close eye on the reward likely to ﬁnd that taking this more holistic approach to target 6 Make greater use of multiple they are getting as good a return skills – people regarded as most strategies of their competitors and setting will in itself motivate employees to deliver rewards, mixing short- and survive diﬃcult times without on their investment as possible, vital to the company’s future on general market trends. Clearly, enhanced performance. long-term incentives with the shedding jobs. by using reward to drive the kind success. Since the recession, they still see competitive pay as motivational stimulus of of performance they need. Yet variable pay is also a critical a critical driver of their reward better career development and organizations are doubly reliant on lever for motivating performance strategies, particularly for their varied and interesting work. such people, many of whom have and engaging employees in the key talent. taken on wider roles as a result of organization’s goals. The best ﬁrms
6 ViewPoint I Issue 3 I Performing in uncertain times Best Companies for Leadership Best Companies for Leadership continued Elements of successful leadership. Businesses keen to emulate the success of this year’s The DNA top 20 leaders may learn from six elements of successful leadership that Hay Group has distilled from its research. of successful 1 Create purpose-driven leadership. As well as focusing on their own (i) The large, complex, global organizations such as General Electric, success over the past year, leading organizations have also been WalMart, Coca-Cola and IBM, excel at managing a pool of successors investing signiﬁcant time and resources in building partnerships with for mission-critical roles. others to address major global challenges. Procter and Gamble’s new (i i) The more modern, learning-oriented, fun organizations, such vision is to “touch more lives more completely in more parts of the world,” as Southwest Airlines, zappos.com and Ikea, don’t punish failure, and one of the ﬁrst questions CEO Bob McDonald asks when he talks they encourage people to have fun and talk about emotions. leadership to his leaders is: “What are you doing in your leadership outside the company?” Similarly, ‘community empathy’ is an important value (i ii) Collaborative and innovation organizations – 3M, Procter and Gamble in Infosys, where all individuals, whether formal or informal leaders, and ABB, for example – accomplish work through self-organizing project are asked what they can contribute to society and are encouraged to teams and expect individuals to come up with solutions to problems see their work within a larger, more meaningful, context. on their own. 2 Win hearts andleaders In ﬂatter, increasingly complex authority over organizations, minds. often lack direct control and matrix-type 5 execution doesn’t thinking skills. IfFocusing on the rightstrategy, essential Develop strategic help you much. you have the wrong goals is great The essential building blocks leaders will need to be successful in the future are revealed in people they need to help them drive performance. In order to win to driving up performance. hearts and minds they need to be inspirational, and feel comfortable Hay Group and Bloomberg Businessweek’s recent Best Companies for Leadership study. dealing with ambiguity. But leaders need to think strategically and tactically at the same time. They need to be agile learners, with the ability to shed old mindsets and It is no coincidence that the Top 20 Best Companies are more matrixed look further aﬁeld for insights on how to tackle new and unforeseen and cross-functional than the rest. Therefore the issues leaders address challenges, quickly. Aware that major, unpredictable often cut across organizational silos, which encourages them to think in One of the best ways to develop strategic thinking is to give aspiring a more enterprise-wide way, fosters joint problem solving and Meet the and high-impact events will be leaders challenging opportunities as early in their careers as possible. a regular feature of the future helps prevent ‘turf wars’. Procter and Gamble, for example, hires people with the potential to move author economic landscape, they have up at least two levels in the organization and gives them the experience identiﬁed the key attributes leaders to help them develop. For their high-potential leaders they identify will need to be successful in the 3 promoting leaders from within the organization is both more cost Treat talent as a strategic corporate asset. Research shows that ‘destination roles’ that they could move into in ﬁve to seven years’ time. new world, and the kind of cultures needed to nurture them. In essence, eﬀective and more successful than hiring from the outside, and the those qualities and cultures are ones Top 20 have been at pains to build bench strength for critical roles. that help to both engage people This not only increases the candidate pool for leadership positions, 6 Teach your leadersoftothe best waysLeaders need to develop is to teach it to to learn and one be teachers. to learn something new their capacity and enable them to perform. but also provides growth opportunities for individuals and makes them feel valued. others. Coaching and mentoring are, therefore, key elements in fostering As well as prizing strategic successful leadership. Between 2008 and 2010 ABB increased the number of leadership thinking over the ability to execute, Southwest Airlines uses ‘embedded coaches’, who usually come from one development initiatives by 88 per cent, despite an across-the-board the Best Companies are also looking part of the business and act like personal trainers in another. And last year, cut in costs of 30 per cent. Some 90 per cent of these opportunities resolutely to the future rather than despite the meltdown in the ﬁnancial services industry, 152 senior leaders were taken up, indicating the appetite for development from being preoccupied with the past, functioned as teachers at the Goldman Sachs University. The bank believes individuals despite the diﬃcult economic environment. and favor inspirational leadership that part of leadership responsibility is to help grow the next generation. above technical competence. Signiﬁcantly, even during the tough Signiﬁcantly, the best-in-class companies had a higher proportion of women in senior leadership roles. Women tend to use a coaching style times they continued to nurture their leadership talent, which 4 Use your culture to drive and sustain development. The best-in-class organizations place the same emphasis on behaviors and cultures more than men, so are arguably better able to develop the skills of others. Mary Fontaine helped drive engagement as as they do on results, and are passionate about creating cultures The leadership practices of the Top 20 Best Companies for Leadership Managing director, well as positioning them to take that support and sustain leadership. There is no one ‘culture’ feed through to the bottom line. In terms of shareholder return, leadership and talent, advantage of the upturn. that guarantees leadership success: what is important is that an they signiﬁcantly outperformed the S&P 500 index, both in the short and Hay Group organization has a culture and that it is aligned with the overall longer term – suggesting that the kind of leadership that fosters employee Another major trend to emerge strategy. However, some culture ‘patterns’ emerged from the Top 20 engagement and enablement helps drive performance even during from this year’s research is a keen Best Companies. Here are some examples of how diﬀerent cultures the most diﬃcult times. recognition of the broader societal determine leadership development in particular organizations. >> role that organizations and their leaders have to play in helping to address major global environmental and social challenges. The additional sense of purpose employees feel by Did you know? being able to ‘do good’ at the same time as ‘doing well’ at work helps to This year Hay Group teamed up with Bloomberg Businessweek to ﬁnd out what the Best Companies for Leadership are doing foster the all-important engagement diﬀerently from their peers in order to drive performance during unprecedentedly challenging times. The research covered 1800 and ‘enablement’ that drive participants from over 1100 large, medium and small organizations across the world. For the ﬁrst time this year, the research high-performance cultures. was extended from heads of talent management to all employees.