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Compensation & benefits management:
het beloningshuis van de toekomst
Vlerick HR Day - Xavier Baeten
“The changing face of reward”

   "Plato believed that no-one in a community should earn
   more than five times the pay of the lowest paid worker."

           “incentives will never be perfectly aligned
                     with value-creation.”

  “One-quarter of the highest-potential people in your company
             Intend to jump ship within the year”

                      “The Silver Tsunami”

        “work is becoming the new face of retirement in the
                          21st century”

“SRIHRM”                “Age management”                      “FFWP”
Trends & challenges


1.         Flexible rewards: pay-for-performance
2.         Family-friendly workplace practices
3.         Flexible rewards: choice
4.         Health benefits
5.         Corporate Citizenship
6.         Retirement and pension plans
7.         Employee value proposition



© Vlerick Leuven Gent Management School
1. Flexible rewards: pay-for-performance
       Less fixed, more variable
             39% plan to increase the proportion of variable pay
       More differentiation
       Targets & measures
       Collective bonus
       Bonus deferral
       Some tips:
             Do not over-incentivise
               5 – 10 – 15
             Target setting
             Go beyond financial measures
             Flexibility& discretion
© Vlerick Leuven Gent Management School
2. Family-Friendly Workplace Practices

                                                                 Holidays:
                                                                number &
                        Total hours                             regulation
                        worked per
                           week

                                                    Childcare
                                                     subsidy                Working
                                                                          from home


                Childcare
                flexibility
                                                  Job             Job
                                               switching        sharing



5|   © Vlerick Leuven Gent Management School
2. Family-friendly workplace practices
            Bloom, N., Kretschmer, T., & Van Reenen, J. (2011):
                  Sample:
                    50-10.000 employees
                    Countries: Germany, France, UK, US
                  Findings:
                    No relationship with firm performance
                    No relationship with % female employees overall
                    Positive relationship with female managers
                    Positive relationship with ‘good management practices’
                              Operations
                              Monitoring
                              Targets
                              Incentives

6|   © Vlerick Leuven Gent Management School
3. Flexible rewards: choice


            Low flexibility                                                                 High flexibility

            Low cost                                                                             High cost



                      Salary                                               Core Plus
                                                  Modular
                    reduction                                          • Core: basic          Mix and
                                                  options
                                                                         coverage
            • Premium                                                                         Match
                                               • Choice:               • Plus: flexible
              conversion
                                                 different               credits to       • Flexible credits
            • Flexible
                                                 combinations            purchase
              spending
                                                 of benefits             additional
              account
                                                                         coverage


                                                   Barringer & Milkovich (1998)

7|   © Vlerick Leuven Gent Management School
3. Flexible rewards: choice

            Do not provide too much choice – most important:
                  Time (holidays, leave)
                  Mobility (car, public transport)
                  Pension contribution
            Main barriers:
                  Tax treatment
                  Administrative burden
            Main effects:
                  Employer reputation
                  Improves knowledge of benefits


8|   © Vlerick Leuven Gent Management School
3. Flexible rewards: choice

           What are the most popular ingredients of a cafeteria
           plan?
                 Money for…
                   Extra holidays
                   Bigger car
                 Holidays for…
                   Sabbatical or early retirement
                   Extra cash
                   Extra benefits



9|   © Vlerick Leuven Gent Management School
4. Health benefits

              Wellness programs
                    Social, mental and physical health
                       Food, fitness, stop smoking, stress, …
                       Health risk appraisal
                    Growing focus in the USA
                       74% use incentives (e.g., small cash awards, t-
                       shirts, memberships in health clubs), up from
                       50% in 2008
                    J & J: return of $2.71 for $1.00 spent
                    Positive impact on retention
                    Clear signal about firm culture: culture of health

10 |   © Vlerick Leuven Gent Management School
5. Corporate Citizenship

              CSR – PR = HR
              Research results:
                    More than 90% of MBAs are willing to forgo financial benefits
                    in order to work for an organisation with a better reputation
                    for CSR and ethics (Stanford)
                    72% deciding between 2 jobs choose to work for the
                    company that also supports charitable causes (Deloitte)
                    Only 15% say their employer has an employee sustainability
                    engagement policy (Brighter Planet)



11 |   © Vlerick Leuven Gent Management School
5. Corporate Citizenship




12 |   © Vlerick Leuven Gent Management School
5. Corporate Citizenship




13 |   © Vlerick Leuven Gent Management School
5. Corporate Citizenship




14 |   © Vlerick Leuven Gent Management School
6. Retirement & pension plans

    “In Europe, fewer older individuals work because public policies
   encourage them to step down and create job openings for younger
                               employees
             Pension plans:
                   Impact of economic crisis?
                   People do not think enough about retirement
             ‘Older’ workers – some research results:
                   Fewer sich days
                   Less turnover
                   Better interpersonal skills
                   More engaged
                   However… 13% actively recruit older workers
15 |   © Vlerick Leuven Gent Management School
6. Retirement and pension plans


              Impact on Reward Management
                    End-of-career is not an “on-off” switch - flexible retirement
                    (4th pillar)
                    Impact on job content
                    Need for flexible rewards:
                      Benefits: pension plan, mobility, holidays
                      Bonus plans?
                    Need for changes in social security
                    and tax system



16 |   © Vlerick Leuven Gent Management School
6. Retirement & pension plans




17 |   © Vlerick Leuven Gent Management School
7. Reward Proposition

                                 Important           Less important
              Financial rewards:                 Financial rewards:
                    Pay structure                  Bonus
                    How raises are determined      Employee benefits
                    Pay structure                Non-financial rewards:
                    Information                    Management approachability
              Non-financial rewards:
                    Responsibilities
                    Colleagues
                    Security
                    Career opportunities



18 |   © Vlerick Leuven Gent Management School
7. Reward Proposition




19 |   © Vlerick Leuven Gent Management School
What are companies working on?
       Projects in reward management




20 |   © Vlerick Leuven Gent Management School
What are companies working on?
       Projects in reward management


              Benchmarking
              Bonus design:
                    Simplification
                    Collective bonus
                    Bonus deferral
              Pension plans: from defined benefits to defined
              contribution




21 |   © Vlerick Leuven Gent Management School
“There is now more attention being paid to the
  balance between financial and non-financial
performance; it has been too financially oriented”



     “The trend will go to ‘one size fits me’”




     “Distilling the message and getting line
      managers to really buy it … is critical”

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Compensation & Benefits Management: Xavier Baeten

  • 1. Compensation & benefits management: het beloningshuis van de toekomst Vlerick HR Day - Xavier Baeten
  • 2. “The changing face of reward” "Plato believed that no-one in a community should earn more than five times the pay of the lowest paid worker." “incentives will never be perfectly aligned with value-creation.” “One-quarter of the highest-potential people in your company Intend to jump ship within the year” “The Silver Tsunami” “work is becoming the new face of retirement in the 21st century” “SRIHRM” “Age management” “FFWP”
  • 3. Trends & challenges 1. Flexible rewards: pay-for-performance 2. Family-friendly workplace practices 3. Flexible rewards: choice 4. Health benefits 5. Corporate Citizenship 6. Retirement and pension plans 7. Employee value proposition © Vlerick Leuven Gent Management School
  • 4. 1. Flexible rewards: pay-for-performance Less fixed, more variable 39% plan to increase the proportion of variable pay More differentiation Targets & measures Collective bonus Bonus deferral Some tips: Do not over-incentivise 5 – 10 – 15 Target setting Go beyond financial measures Flexibility& discretion © Vlerick Leuven Gent Management School
  • 5. 2. Family-Friendly Workplace Practices Holidays: number & Total hours regulation worked per week Childcare subsidy Working from home Childcare flexibility Job Job switching sharing 5| © Vlerick Leuven Gent Management School
  • 6. 2. Family-friendly workplace practices Bloom, N., Kretschmer, T., & Van Reenen, J. (2011): Sample: 50-10.000 employees Countries: Germany, France, UK, US Findings: No relationship with firm performance No relationship with % female employees overall Positive relationship with female managers Positive relationship with ‘good management practices’ Operations Monitoring Targets Incentives 6| © Vlerick Leuven Gent Management School
  • 7. 3. Flexible rewards: choice Low flexibility High flexibility Low cost High cost Salary Core Plus Modular reduction • Core: basic Mix and options coverage • Premium Match • Choice: • Plus: flexible conversion different credits to • Flexible credits • Flexible combinations purchase spending of benefits additional account coverage Barringer & Milkovich (1998) 7| © Vlerick Leuven Gent Management School
  • 8. 3. Flexible rewards: choice Do not provide too much choice – most important: Time (holidays, leave) Mobility (car, public transport) Pension contribution Main barriers: Tax treatment Administrative burden Main effects: Employer reputation Improves knowledge of benefits 8| © Vlerick Leuven Gent Management School
  • 9. 3. Flexible rewards: choice What are the most popular ingredients of a cafeteria plan? Money for… Extra holidays Bigger car Holidays for… Sabbatical or early retirement Extra cash Extra benefits 9| © Vlerick Leuven Gent Management School
  • 10. 4. Health benefits Wellness programs Social, mental and physical health Food, fitness, stop smoking, stress, … Health risk appraisal Growing focus in the USA 74% use incentives (e.g., small cash awards, t- shirts, memberships in health clubs), up from 50% in 2008 J & J: return of $2.71 for $1.00 spent Positive impact on retention Clear signal about firm culture: culture of health 10 | © Vlerick Leuven Gent Management School
  • 11. 5. Corporate Citizenship CSR – PR = HR Research results: More than 90% of MBAs are willing to forgo financial benefits in order to work for an organisation with a better reputation for CSR and ethics (Stanford) 72% deciding between 2 jobs choose to work for the company that also supports charitable causes (Deloitte) Only 15% say their employer has an employee sustainability engagement policy (Brighter Planet) 11 | © Vlerick Leuven Gent Management School
  • 12. 5. Corporate Citizenship 12 | © Vlerick Leuven Gent Management School
  • 13. 5. Corporate Citizenship 13 | © Vlerick Leuven Gent Management School
  • 14. 5. Corporate Citizenship 14 | © Vlerick Leuven Gent Management School
  • 15. 6. Retirement & pension plans “In Europe, fewer older individuals work because public policies encourage them to step down and create job openings for younger employees Pension plans: Impact of economic crisis? People do not think enough about retirement ‘Older’ workers – some research results: Fewer sich days Less turnover Better interpersonal skills More engaged However… 13% actively recruit older workers 15 | © Vlerick Leuven Gent Management School
  • 16. 6. Retirement and pension plans Impact on Reward Management End-of-career is not an “on-off” switch - flexible retirement (4th pillar) Impact on job content Need for flexible rewards: Benefits: pension plan, mobility, holidays Bonus plans? Need for changes in social security and tax system 16 | © Vlerick Leuven Gent Management School
  • 17. 6. Retirement & pension plans 17 | © Vlerick Leuven Gent Management School
  • 18. 7. Reward Proposition Important Less important Financial rewards: Financial rewards: Pay structure Bonus How raises are determined Employee benefits Pay structure Non-financial rewards: Information Management approachability Non-financial rewards: Responsibilities Colleagues Security Career opportunities 18 | © Vlerick Leuven Gent Management School
  • 19. 7. Reward Proposition 19 | © Vlerick Leuven Gent Management School
  • 20. What are companies working on? Projects in reward management 20 | © Vlerick Leuven Gent Management School
  • 21. What are companies working on? Projects in reward management Benchmarking Bonus design: Simplification Collective bonus Bonus deferral Pension plans: from defined benefits to defined contribution 21 | © Vlerick Leuven Gent Management School
  • 22. “There is now more attention being paid to the balance between financial and non-financial performance; it has been too financially oriented” “The trend will go to ‘one size fits me’” “Distilling the message and getting line managers to really buy it … is critical”