Departments - May/June 2010

The Insider

Economic Downturn Influencing Rewards Strategy

By Deborah L. Vence


hile more and more companies are realizing how valuable it is to reward their employees, the global recession, in turn, is prompting businesses to change their reward strategies, according to a study released in February by Hay Group, a global management consulting firm based in Philadelphia.

"The severe contraction in the global economy brought on by the financial crisis has had profound implications for the way organizations are using reward systems to deliver their business strategy," said Tom McMullen, Hay Group's North American Reward Practice Leader.

The study, called "The Changing Face of Reward," examines how the business drivers of rewards are changing due to the impact of the global downturn and other macroeconomic trends in the global economy.

In 2009, Hay Group surveyed more than 700 organizations to get their opinions across the spectrum of reward strategy to design to implementation issues—their levels of current focus, as well as their future focus. Respondents were asked to assess the current and future focus of their reward programs as it applies to their organizations.

Several months ago, Hay Group followed up its research with face-to-face interviews with reward specialists in 230 organizations across the globe to get a deeper understanding of the drivers of change in reward in their organizations and what specifically they were focusing on two to three years out. For the research, Hay Group gathered information from about 1,000 organizations in more than 60 countries.

Hay Group's research resulted in three distinct findings:

  1. Companies are looking for ways to balance the need to reward executives and employees responsibly, with growing interference in the process from regulators and governments.
  2. The recruitment and retention of key talent continues to be an important strategy. With the market for these individuals remaining strong despite the downturn, the focus is on motivating, engaging and rewarding critical high performers.
  3. The use of bonuses is increasing. Incentives are a critical lever for motivating performance and employee engagement, and provide flexibility of the reward cost base.

"We conducted two research studies in the past year that probed this, and to better understand the changes in reward. The focus of our research was what's currently happening and what's changing in broad-based reward programs (as opposed to executive reward programs)," McMullen said. "The interviews we conducted focused on the business issues facing clients, their HR/talent issues and reward issues. In this way, our analysis of what's happening in rewards is rooted in the business issues organizations are facing and what they're planning for the future."

He added, "We've found in our work that benchmarking of common market practice or even best market practice is of little interest. The real interest to these companies is what organizations are thinking about doing in the future."