Total Rewards

Increase employee engagement with personalised total rewards

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For decades, rewards programmes in the Middle East were relatively straightforward. Salary packages consisted of basic salary, housing allowance and transportation allowance. Many organisations provided an annual leave ticket and health insurance as benefits. Companies differentiated between employees on a single or family status, where, in the latter case, dependents were also covered. Despite this, compensation and benefits approaches followed a rigid one-size-fits-all approach.

These days, companies are recognising the need to modernise their total rewards programmes. While other HR areas have evolved, most total rewards programmes remained inflexible, focusing on experience and company seniority. They seem to have forgotten the employee. Leading companies are consequently transitioning to a personalised total rewards experience.

The benefits

As more studies are conducted in this area, the evidence is also supporting the move towards personalised total rewards. Paid back in higher employee engagement and increased business results, both the employee and the organisation benefit from personalising total rewards.

Payscale found that employees who do not understand the pay process are 60 percent more likely to leave the organisation. (Dave Smith, “Most people have no idea whether they’re paid fairly,” Harvard Business Review, December 2015.) Can your organisation afford this?

Companies have 27% fewer regrettable new hires in the first year, according to Willis Towers Watson. Deloitte also found organisations with highly engaged employee experiences have a 2.3x greater than average 3-year-revenue growth.

Understand what your employees value

While organisations may have the best intentions when creating or reviewing benefit plans, employees may have a very different perception. Moving towards a more diverse workforce with part-time employees, contract and project staff and a multi-generational workforce, employees have different needs. Companies may wish to segment their employee groups further, e.g. critical roles, highly sought after skills and high potential employees.

To learn more about their employees, companies shouldn’t just rely on the anecdotal stories from line managers. Employee surveys can give deeper insights into what employees need and value.

Wen Wan, director of talent and rewards at Willis Towers Watson, confirms “any initiative aimed at improving the total rewards experience must take into consideration what employees value most and how those preferences differ by employee segment.”

Total rewards and HR teams can analyse the data, identify recommendations for the most relevant programmes for employees and build tailor made programmes for the different employee groups.

Consider the various TR components

A few years ago, leading companies in this region moved from providing numerous separate allowances to one consolidated allowance. This was to simplify the administration process and to educate employees about the total package approach. Employees are ultimately responsible for how they spend (or save) their salary.

Despite an apparent still fixed approach to total rewards, 12.8% of companies participating in Informa’s 2019 Compensation and Benefits Employer Survey have already implemented flexible benefits. A further 22.9% of participants are considering introducing flexible benefits.

Compensation

While many organisations have moved from fixed grade and step salaries, broader salary ranges give line managers more flexibility in deciding an employee’s pay. They can define the basic salary based on the criticality of the role, possession of skills critical to future success or, at the time of a salary review, achievement of team goals.

Benefits

Companies can offer more flexibility to employees when it comes to benefits. In the UAE, Mercer at its post-TRS survey meeting identified medical insurance, dental and optical insurance, life insurance, and annual leave as four components ripe for flexibility. Employees can swap these at one time during the year (i.e. at renewal date), reducing the concern of increased administration.

Wellbeing

Rising healthcare costs are a global issue. It’s not just the cost for medical appointments and prescriptions. 1 in 5 absences at work is due to workplace stress. The Global Wellness Institute calculated the cost of ill-being as high as 12% of the United States’ GDP. Companies need to realise the importance of well-being and make it a priority.

Even though wellbeing programmes need a holistic approach, organisations can start with purpose-driven activities for their staff. Linked to their industry, companies can emphasise specific initiatives. For example, pharmaceutical companies can focus physical wellbeing while financial institutions financial wellbeing.

Flexible working

In direct conjunction to wellbeing, employees are craving for more flexibility at work and a better work-life balance or integration. Businesses can review their working arrangements. Core working hours with a flexible start/finish and working from home can be implemented without a lot of bureaucracy. Leading companies offer working from other offices for a longer period (e.g. over the summer), allowing employees to strengthen relationships with colleagues in other locations and possibly combining this time with their annual leave.

Recognition

Instead of waiting for the year-end performance review, more organisations are offering frequent performance check ins. While bonus payments are still only at the end of the year, line managers can use recognition programmes to acknowledge their staff’s performance. Monetary awards like cash and gift cards may be given. More research has found that non-financial recognition (e.g. dining experiences, social recognition) contributes to an individual’s happiness and has a longer lasting impact.

Utilise data and technology

For most organisations, flexibility stops with their IT systems. The administrative burden is too much to provide their employees with the flexibility they so desire.

Total rewards and HR teams should review their current procedures and streamline operations to optimise their internal and external resources. The region remains split on HR technology. While 31.9% of the participating companies in Informa’s 2019 survey will stick to excel programmes for data analysis, 44.7% of participants invested in technology compared to 2018.

By using technology, organisations can support their employees to make informed decisions and create an employee grade experience, which is characterised by its simple, convenient and personalised nature. Intuitive self-service at the push of a button provides the easy usage employees are looking for. Total rewards and HR teams can tailor their communication and education for employees according to the individual’s interests and needs.

Measure the cost and impact of your programmes

As with any other programme, total rewards and HR teams need to track and measure their personalised total rewards programmes. Business leaders will be interested in the financial costs and the non-financial impact. The financial costs may be kept neutral, although the more targeted spend will create non-financial returns. Leading organisations have seen positive impacts on employee engagement, their ability to attract and to retain employees.

Surprisingly, leading companies that have already implemented personalised total rewards are not talking about their financial ROI. Especially in times when we can expect an increase in skills shortages and a continued war for talent, it’s part of their overall employee value proposition (EVP) and their strategy of being an employer of choice.

Make a start and prioritise

The decision to move to personalised total rewards may be taken quickly. However, the implementation may require some time and businesses need to prioritise:

  • Offering more flexible working arrangements can be the first step.
  • Adding more health and wellbeing benefits may be reviewed prior to the annual renewal date and the insurer and broker may be heavily involved.
  • Creating more personalised communication and aligning the total rewards/HR experience to the organisation’s brand may be a cross-functional project.
  • Improving the organisation’s technology for administration purposes and employee communication may be a larger financial investment.

Find out how personalised total rewards can increase your employee engagement. Contact us today.

 

Your top performer has resigned. Now what?

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It’s Thursday afternoon. Your employee asked you for a personal meeting. You’re thinking it will be a quick update meeting. Not quite. Your star performer is handing in their notice.

This is not how most of us want to end their week. Receiving the resignation from your top performer can leave you feeling frustrated. So many thoughts are running through your mind. Just what are you going to do now?

Accept and learn

Take a deep breath. It may feel like the end of the world. It isn’t.

You may experience the feeling of hurt and disappointment. After working closely with your top performer, you’ve trained and developed them and don’t understand why they didn’t open up earlier about their plans. The employee may have had their reasons for not sharing them with you. Or perhaps they did all along and you just didn’t listen?

For now, simply accept their decision and take some time to reflect on it.

(No) counter offers

You may not be that ready to accept their resignation. You may consider offering them a counter offer, generally involving a higher salary and/or exposure to specific work and responsibilities.

Some companies categorically rule out counter offers. Such organisations see counter-offers only as temporary band aids. After all, you shouldn’t stop a rolling stone.

Unfortunately, history has shown that most employees who accepted a counter offer will still leave for the same reasons that made them look externally in the first place. Next time around, the company will not offer another counter offer and the employee will leave for good.

In contrast, some organisations may provide a counter offer for top performers in critical roles or working on time-sensitive projects. For these companies, a counter offer closes the immediate need and buys them more time to find an alternative, knowing the employee may still resign in a few weeks or months.

Before committing to any counter offer with your star performer, check with your company’s process and DOA. How long will it take to reach a decision, including answering these questions:

  • Do you know what would make your employee stay (higher salary, flexible schedule, a different project)?
  • Will you be able to match the external offer? Do you want to match the external offer?
  • If not, what non-financial offerings (e.g. new customer, new responsibilities) can you provide? How will you sell these?

Learn from exit interviews

“Employee leave for more money” used to the be explanation. Study over study shows that compensation is not one of the top reasons. For many top performers, a number of events is leading to their resignation.

Organise an exit interview and understand the employee’s motivation for leaving. Exit interviews are ideally held on the employee’s last working day or after they’ve left the company. This way, they don’t have to fear any repercussion for providing direct and honest feedback.

For any exit interviews held by HR in person, careful attention has to be paid to non-verbal cues. Assumptions and interpreting what the employee may wish to say can be misleading. More and more companies therefore use online exit interviews which protect the employee’s privacy and allow them to speak freely.

Implications for the team

While an exit, whether voluntary or involuntary, can impact the team, the disruption can be limited. This is an opportunity to review the team’s roles, responsibilities, processes and workflows.

Most teams generally anticipate some additional work while a replacement is being identified. During this time, support for the remaining team is crucial or a domino effect may be expected.

Managers can spend more time with each team member and modify work goals. At the same time, take a genuine interest in each employee and also help them achieve their personal goals. It’s the latter that also increases employee engagement, something in high demand especially during these times of change.

Just as current work arrangements are being reviewed, focus on making knowledge sharing and succession planning integral parts of running your business. Being pro-active now can reduce the impact of future resignations.

Create a succession plan where you identify those employees who could immediately step in, even if it’s only for a specific period, and who needs to be prepared within the next 6 or 12 months or longer. Do you have any employees who could be cross trained to reduce your dependencies on one individual leaving? Decide what specific training and exposure they’ll require and then start getting them ready. Depending on the transparency levels within your organisation, you may wish to inform these employees about your succession plans while also carefully managing their expectations.

The replacement

As you’re considering the current team structure, you may decide that a replacement is no longer needed. Perhaps you place this role on hold, profiting from manpower savings and only revisit the potential recruitment activities in a few weeks or months.

Should you have determined that freezing the vacancy is not an option, start thinking about the requirements on the role and the ideal candidate. It can be a challenge finding the perfect successor for your star performer. By understanding your team’s needs, you can narrow down on the must have skills, knowledge and experience. You’ll be able to recognise desirable abilities and traits as a differentiator between two (or more) equally suitable candidates.

You may choose not to recruit for the replacement externally and select an internal candidate, although their profile may not be a 100% match. Such a decision may be linked to your overall EVP and HR strategy, focusing on growing talent internally and reinforcing your company’s stand on internal career progression. You’ll provide the internal candidate with an individualised learning plan, acknowledging the support and training they require from you to become successful in the new role.

Make for a smooth exit

While notice periods vary from role and level within the organisation, motivation generally declines quickly after giving notice. It’s best to start the hand over as soon as your top employee handed in their resignation. Agree which activities need to be completed or to whom they need to be handed by what date. Obtain log in details and passwords. Decide who will notify customers about the individual’s departure. When will that communication go out and how?

If your star performer is in a sensitive role, you may wish to put them on garden leave. If you decide that, how will you extract their knowledge and manage the hand over?

Some individuals may ask to shorten their notice period. As tempting as it is to hold them to the entire notice period, be honest with yourself: How much will they actively contribute 9, 10 or 11 weeks into their notice?

To keep the experience with your organisation a positive one, consider agreeing on an earlier end date, especially if brought up by the employee.

You can ask them to take any accrued but untaken leave days. This will reduce your financial responsibility to pay out any such days. Although it may be hard for you to appreciate it, you are, however, giving the employee some time to relax, finish working for your organisation on a high note and start their new job fresh. It all adds up to a positive image of your company and the employee being an ambassador for your organisation even when they’ve moved on.

Finally, wish them well. You may not want to throw a big farewell party. Yet, you may wish to give them a card and say good-bye with dignity and respect. Cherish the good memories you, the team and your top performer shared.

Don’t be caught off guard when your top performer leaves. Contact us today and learn how we can reduce your organisation’s dependency on a single employee. Don’t be stuck in a crisis mode. Be prepared.

The benefits of HR Policies

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We are working in one of the world’s most multi-cultural regions. Individuals from all over the world are coming to work in the Middle East. They are bringing their skills, excitement and hope as well as their beliefs and value systems. Leading a team where languages, viewpoints and behaviours may differ so substantially can be a challenge even for experienced line managers and HR teams alike.

Policies can support creating a common ground for all employees regardless of their background.

What are policies?

While top management determine the guidelines for the business, policies break these down further and define how the business runs. They support the strategic growth, the day-to-day operations as well as organisation’s culture.

What are the benefits?

Written HR policies provide numerous benefits to an organisation.

As companies are growing and hiring new staff, common standards need to be communicated. HR policies help all employees get and stay on the same page and support the company’s culture.

Companies can base their policies on best practices, set to foster innovation, increase the employee experience and strengthen the competitive advantage. Local companies can benefit from the flexibility which the UAE labour law gives them to adjust HR policies issued by their global head office to their specific requirements.

Determining the delegation of authority, roles and responsibilities are clarified for everyone. This, in return, reduces misunderstandings and ensures smooth workflows.

As such, well-written policies provide an opportunity to strengthen employee relations. Reflecting the needs of both parties, they describe the performance and behaviours expected from the employees and the support and guidance given by the company. Should any disciplinary actions need to be taken, they provide a clear framework for consistent and fair treatment and are to prevent lawsuits, as much as possible.

Hence, HR policies consequently serve as a reference point for all people matters.

Which policies to include?

The local laws outline a limited number of required procedures only. Chapter VI of the UAE Labour Law Federal Law No. 8 of 1980 and its amendments describes disciplinary actions whereas Law No. 2 of 2015 against Discrimination and Hatred focuses on the prohibition against discrimination in an employment context.

Companies can therefore decide which policies they implement depending on their needs, provided they do not conflict with the local laws. Typically, companies choose to cover the following areas in their policies:

Recruitment

Organisations can define how they link their strategic workforce planning with the operational recruitment activities like selecting candidates and rehiring former employees. Policies may also include an employee referral programme or deal with the recruitment of family members and relatives.

Code of conduct

Companies can set their own standards of behaviour in their code of conduct, which reflects the organisation’s daily operations, core values and overall company culture. The handling of bullying and harassment situations may be described here, too.

Compensation and benefits

Policies can outline the company’s approach to rewarding employees, eligibility of benefits and allowance and evaluating jobs. They may also include how the company will address salary reviews.

Leave

Besides mandatory leave, companies can support their employees’ wellbeing by providing additional leaves, for example, time off for parental and caring duties, sabbatical or study and exam leave.

Learning and development

These policies address the company’s view on training and can point out the resources available for employees to acquire and develop their skills. They can lay out the criteria for reimbursement of any employee-initiated training, if it is relevant to the job, or special assignments for the employee to gain new experiences.

Performance

Performance policies assist companies applying fair performance assessments. They can also provide guidance on how to deal with unacceptable conduct and help employees improve. A disciplinary policy is normally also in place.

Although there is no limit on the number of policies a company may have, a reasonable and practical approach should be applied. Companies should therefore evaluate the specific needs for their business, however, it is recommended to have the following policies at a minimum written and communicated to all staff:

  • Bullying, harassment and discrimination
  • Code of conduct
  • Disciplinary
  • Grievance

Just as the business evolves and changes, HR policies need to have an option to adjust to the changing business requirements or legal mandates. Do your policies provide you with that flexibility?

HR policies are an effective way to look after your organisation’s and your employees’ needs while providing guidance to handling common workplace issues. Contact us today and learn how we can draft tailored HR policies fit for your business needs.

What’s happening in compensation and benefits this year?

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As every year, Informa hosted the 2-day-long Compensation and Benefits Forum in Dubai last week. For us, it was an opportunity to reconnect with former colleagues, meet new friends and share the latest compensation and benefits trends with you!

The employer trends report

Prior to the actual event, we supported Informa in creating their 2018 employer trends report. Participants reported being challenged by the fluctuating economic conditions across the region. As such, 20.36% of participating companies are planning to implement modest pay increases of up to 3.5%. In contrast, 6.04% of participants are proposing increases of 6.0% or higher in 2018.

The labour market is currently in favour of employers, yet, there’s always an opportunity for high performers. More than half of participating companies are experiencing an attrition rate of 5.0% or less while almost 1/5 of participants report over 10.0%. It was surprising to find out that over 11% of companies are unaware of their attrition rates.

The implementation of VAT (value added tax) has also kept rewards professional busy. For most companies, no special adjustments will be made for salaries or benefits. Employers are taking the view that VAT is part of life and the burden cannot be taken off employees’ shoulder. This comes as a mindset change. Historically, this region has provided various allowance like housing, transportation and schooling to help (expat) employees with the cost of living.

2018 challenges

2018 offers to be an exciting year. Conservative and innovative approaches need to balance business needs and employee expectations. Participants reported the following three areas as the most important ones on their agenda:

  1. Increased employee engagement
  2. Manage cost
  3. Retain employees

The challenges are interlinked and are no longer answered by HR Business Partners or HR Generalists alone. Rewards professionals are being asked to create solutions to complex HR topics.  Some of the attendees at the Compensation and Benefits Forum described their challenges as “thrilling”, “not sure how to manage everyone’s expectations” and “a big step towards where we should be”.

Automated analyses

AI is everywhere these days and HR can no longer hide from it. Yet, not every company is prepared or ready for the digital transformation. Mohammad Salman Hashim from Nielsen suggested taking a data-driven approach for your rewards spend. Before starting, look internally and take stock. Which reports are currently available and which ones of these do you utilise?

Hashim advised to review these reports critically. Many HR Generalists still struggle to interpret the data and need to become more comfortable dealing with numbers. Nonetheless, reports can be set up with insufficient segmentation which can obscure the story for HR Generalists.

A regular activity for rewards professionals is to simulate various scenarios. To advise any business leader, they need to be given a full overview of options and the long-term impact of each proposal. For Hashim, this area is where HR and rewards teams can contribute substantially to the business: Predicting the impact before taking any actions. Business leaders can be stopped making a decision based on gut feeling that may end in financial loss or reputational damage.

Short-term incentive (STI) schemes

Discussing the regional application of STI schemes, Dr. Sabeeh Ghugharia, Regional Corporate Human Resources Manager at Mediclinic, emphasised the need to include the patient (or customer) experience to the performance matrix. The traditional components like company sales and individual performance can no longer be the driving factors in the bonus equation.

Sachin Bajaj, Head of Performance & Rewards, NEMEA at Takeda Pharmaceuticals, took it even a step further. Instead of offering a convention STI, he proposed employees opting for up to 100% bonus. While this is more common for sales roles, it would be a radical move for support staff. Companies would need to improve setting realistic targets and enabling employees to be able to reach their goals when implementing such an approach.

For most attendees, this was an approach too far out of the box for them to warm up to. Nevertheless consensus in the forum was that every employee should be incentivised for the part they play in an organisation’s success. STI schemes may need to become a profit sharing schemes for roles where the direct impact may be harder to measure. With that, the forum recognised the importance of incentives to engage and also retain employees.

Sustainable rewards

Oluyomi Okunowo carried on with this thought and he sees STI schemes as a cost-effective way to manage change. As STI schemes only pay out when results have been achieved (i.e. self-funded), the STI design can thus become inspiring and targeted while optimising its spend.

All too often, it’s the individual who gets rewarded on their own merits. Their interactions with other team members may not be fully taken into consideration during the STI design. To optimise the STI spend, Okunowo suggested a renewed focus on team-based initiatives.

Consistency

Consistency is key in 2018. Companies are required to create more strategic approaches to their rewards and overall HR activities. While economic conditions are favourable for companies, this may change and employees will dictate the rules. Organisations are to build employee loyalty now, as Okunowo urged. “How will you get loyalty when 40% of Americans will be Gig employees by 2020?”

Are you set to tackle the 2018 challenges in your company? Call us on +971-52-2516322 and find out how we can help you optimise your rewards programmes to engage and retain your employees while balancing your company’s budget.

Excel vs ERP – How to find the right tool for your organisation

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Over the years, we’ve worked with a large number of clients coming from all industries and ranging from the small start up to publicly listed organisations with over 100,000 employees. What do all of our clients have in common? It’s their desire to be more efficient and effective in their strategic and daily HR operations.

Like most companies, they are asked to achieve more with fewer resources and streamlining their processes is crucial. They use data to make decisions and to take their organisation to the next level.

The digital transformation is mentioned everywhere.

A number of organisations have rushed out to buy the latest enterprise resource planning (ERP) solution without doing a thorough review of their needs. The organisation’s capability, processes and readiness for change may not have been considered, either. How can these companies achieve their desired state? Do they know what this even looks like?

“If you don’t know where you are going, you might wind up someplace else.” (Yogi Berra)

If companies don’t know what their data says, how can they reach their (strategic) destiny?

This is the dilemma many companies, whether established or still young, face. For many, Excel is still the tool of choice while others swear by their ERP. We’ve dedicated this newsletter to review the options and for you to identify the appropriate solution for your organisation.

  1. Easy start vs implementation

Purchasing a licence for Excel is as easy as saying 1-2-3. A user can take the free tutorials giving overviews of the basics, formulae or pivot tables. A new user of Excel can choose from the many courses available on the internet and doesn’t have to wait for any in-person training courses.

An ERP system is connected to other parts of the business. The different dependencies can make an EPR implementation a challenge for any project manage. Anyone who has ever been through an ERP implementation recalls the lengthy process and may have experienced the different stakeholders pursuing different, potentially also conflicting requirements. Finding a system that can do everything for everyone within the given budget is not straightforward.

  1. Single source of entry vs collaborative working

Data entry into Excel is generally controlled by one person at a time which potentially slows down the processing time. Other team members can still access (non-shared) files as a read-only version, however, any updates for their data analyses won’t be included.

While multiple users can edit an Excel spreadsheet, changes aren’t tracked unless the “track changes” box is selected. Many Excel users aren’t aware of this function and, thus, don’t activate it. There’s the risk that data is overridden incorrectly or changes being made without having a complete change flow.

An ERP system allows multiple users to change and access the data simultaneously. ERPs automatically track the changes, making it easier to backtrack any steps, as needed.

A cloud-based ERP gives users the flexibility to access the data and process requests from other devices, e.g. tablet or smart phone. Companies may restrict access from personal devices according to their data protection and IT regulations. For wellbeing practitioners, this raises also the question when managers can actually switch off, just like with the permanent inflow of emails.

  1. Static vs real-time data

As just touched upon, data in Excel tends to be static. Multiple files are often pulled together into one worksheet to gather a comprehensive view and, consequently, analysis. Most businesses don’t operate on a fixed-date basis anymore and changes within the organisation are more fluid.

An ERP system provides real-time data at the click of the finger button. Reports have been defined as part of the implementation process or are being added to meet business requirements. While creating new templates may take some time, generating the reports is generally completed within a very short time.

  1. Single control vs transparency

The information in Excel is often maintained by a small group of HR team member. This may be to reduce the number of entry errors. Files need to be made available to other areas of HR (e.g. via a shared drive) and the business, bringing up the question of version control and data privacy if accessed on non-secure devices.

Depending on the company’s philosophy and managers’ maturity, not all data will be shared with all line managers. Accordingly, files need to be adjusted to what the individual line manager is allowed to see, taking more time to complete a sometimes simply query.

On the other hand, an ERP is already set up with the restrictions of who can see what. Managers are enabled to pull their own reports when they need them, not when HR has the time to process them.

  1. Independent vs integrated processes

For many, Excel is still an independent part for many HR processes.

ERP systems, in contrast, combine various HR processes from recruitment and onboarding, over cyclical performance and salary reviews to learning and development plans.

Conclusion

Before you determine whether solution is appropriate for your business, review your organisational architecture (e.g. culture, structure and how your business operates). You may also ask yourself questions around your current practices in Excel and how you can modify those before investing (sometimes heavily) in an ERP:

  • What do your current processes look like? Are there any areas which could be optimised?
  • Based on the current processes, could you tweak them and still utilise Excel? Which templates and communication schedules would you need to create to increase efficiencies through Excel? What training can you provide to HR team members to enhance their knowledge around Excel?
  • How open is your company to change when implementing an ERP? To what degree is your organisation willing to adjusted processes for an ERP (remember: often the organisation has to adjust to the workflow of an ERP, not the other way around)? How much would daily operations be interrupted for both the business and HR when moving to an ERP?
  • What ownership, flexibility and transparency do you want to give to your line managers? What would approval processes and DOA look like under an ERP?

Are you unhappy with the data quality in your organisation? Do you feel time is wasted but can’t pin point to the issue? Call us on +971-52-2516322 and find out how we can identify wasteful process areas and create efficient and effective processes fit for your team and company.

Maximise a limit merit budget

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For many organisations in this region, the 2018 merit rounds will bring new challenges. As in other parts of the world, merit budgets are limited while employees are experiencing a rise in cost of living. Since 1 January 2018, VAT has been added to most areas of our life. Employees have already asked last year how companies will compensate them for these increases?

Most companies still wait and see what other companies are doing and are planning to provide a merit increase only. Any cost of living increases may follow at a later stage. With budgets already set for many organisation, companies can still be creative and maximise a limited merit budget by using one or a mixture of the following course of action:

  1. Peanut butter approach
  2. Differentiation by performance
  3. Targeted increases
  4. Lump sum awards

The peanut butter approach

The peanut butter style provides the same percentage increase to every employee. It is generally taken by organisations wanting to give an equal increase to cover the employees’ cost of living, especially since the implementation of VAT. While managers are not involved in the process and no additional calibration and approval meetings, the process is reduced substantially. HR and Payroll can implement the new salaries almost instantly, freeing up resources for other projects. However, such increases become a mere cost of living adjustment rather than a merit increase.

Differentiation by performance

Companies may want to support their performance-driven culture by linking it to financial rewards. These organisations provide different increases for the different performance ratings. In general, a low performing employee would receive no increase or only a minimal one. In contrast, the efforts, achievements and behaviours of high or top performers are recognised with merit increases equivalent to 2x or 3x of the budget.

An effective performance management system is a pre-requisite for any pay-for-performance programme. While some companies set a fixed increase for each performance rating, the trend is to enable managers to determine the increase from a range. In the latter case, a realistic timeframe needs to be set for managers to provide their recommendations and calibration before the increases can be communicated to employees and executed by Payroll.

Targeted increases

Similar to differentiated increases by performance, organisations can provide targeted increases for certain employee groups. This could be for critical roles which create value in, for example, improved quality, financial performance or customer satisfaction. They could also be of a strategic impact where roles are linked to the organisation’s capability to maintain and strengthen its position. Other employee groups could include high performances, high potentials, individuals on the succession plan, hard to replace or employees with hot skills or those low in the salary range.

Knowing which roles, skills or individuals should be focused on, HR and management can identify an appropriate merit increase. For simplicity, all increases to the identified groups can be of the same amount (peanut butter approach), yet, such increases may not lead to the desired motivation boost amongst the workforce. Should the company wish to differentiate between these groups, the proposed merit increase can be distinguished based on certain factors, like the contributions made to the organisation and the implications and risks of leaving. This process, however, can easily be over-engineered, leaving to a lengthy planning and implementation period which, at times of a limited merit budget, may be counterproductive.

Lump sum awards

As merit increases not only increase the current salary, they also add costs to other salary-linked elements like bonus, end of service benefits, pension or social security contributions. For companies to control the rising long-term cost implications, lump sum amounts can be paid.

Even here, companies have options around the payout: For all employees or just specific employee groups. A flat amount or varying amounts based on a points system (e.g. for performance or criticality of the role or individual).

Each approach has pros and cons as explained above and HR teams need to their overall objective when identifying the appropriate one (or a blended one) for their business. Linking it to the company’s culture is as important as getting top leadership buy in before communicating the chosen way to management and consequently employees.

When facing financial challenges, companies win by communicating a transparent overview to their employees. It helps to manage employees’ expectations and reiterates the company’s philosophy for success. Line managers need to be supported by HR and be prepared to communicate potentially harder messages to employees not receiving any pay increase.

HR teams together with line managers should also look at non-financial rewards to recognise, motivate and retain while being challenged by a limited merit budget.

Do you want to ensure your limited merit budget achieves the desired outcomes? Are you uncertain about which approach is the right one for your company? Call us on +971-52-2516322 and find out how we can help you maximise your merit budget motivating and engaging your employees.

Total rewards philosophy – Have you defined yours?

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When was the last time you reviewed your total rewards philosophy? Or does your company belong to the 39% of companies without a formal, written philosophy, identified in World at Work/Aon Hewitt’s report (August 2016)?

The total rewards philosophy outlines the organisation’s intent of what and how to reward its employees – the total package. It drives and rewards the behaviours and competencies required to achieve the organisation’s goals, creates a framework for rewards decisions and provides corporate governance.

You can benefit from a well-defined philosophy in several ways. It supports the attraction of qualified talent, motivates your employees to behave and achieve the highest performance levels and retains employees as they move throughout their career life cycle.

To define your new or redefine your existing total rewards philosophy, start with these steps:

  1. Work with your leadership team to understand the organisation’s strategy, key objectives and company culture (including desired behaviours and competencies)
  2. Create and align the total rewards philosophy to best serve these interests
  3. Ensure the total rewards philosophy is also aligned to other HR strategies (e.g. talent management) and doesn’t contradict the organisation’s EVP
  4. Determine the desired competitive position (e.g. the percentile) within the chosen competitor set, considering also any financial constraints
  5. Create the optimal rewards mix for each employee group and possibly differentiated by job category
  6. Layout how each element will be earned (e.g. performance driven, individual vs group incentives).

Creating the unique rewards mix for your company can be one of the hardest steps. World at Work has developed a total rewards inventory outlining the various cash and non-cash rewards companies may offer. You can use this inventory as a starting point to select the appropriate elements for each employee group:

  • Compensation: The base/basic salary, premium and variable pay for the services rendered by the employee
  • Benefits: The non-cash rewards provided to the employee in addition to their compensation although with a financial value and cost for the company
  • Work-life effectiveness: The policies and programmes designed to help the employee achieve balance between work and (home) life
  • Recognition: The acknowledgment of the unique contributions, display of the desired behaviours or the value of expertise and experience of an employee or a team, contributing to the company’s success
  • Performance management: The continuous process ensuring the employee’s performance contributes positively to the business objectives and success
  • Talent development: The opportunities and tools for employees to advance their skills and competencies in both their short- and long-term careers.

While you are creating or updating your total rewards philosophy, use this checklist from the Society for Human Resource Management (SHRM) to ensure a high-quality and effective total rewards philosophy:

  • Is the overall total rewards philosophy equitable?
  • Are the programs included in the philosophy and policy legally compliant?
  • Is the overall philosophy defensible and perceived by employees as fair?
  • Is the overall philosophy fiscally sensitive?
  • Are the programmes and initiatives fair, competitive and in line with the TR philosophy and policies?
  • Can the organisation effectively communicate the philosophy, policy, programmes and initiatives to all employees?

Learn how you can successfully communicate your total rewards philosophy to your employees in our December newsletter.

Are you ready to formalise your total rewards strategy or to redefine your existing one but don’t know where to start? Call us on +971-50-5516322 and find out how we can create, enhance and implement a total rewards strategy fit for your organisation.