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Module 5: Possible Pitfalls, Evaluation, and Metrics

Topics

Topic 1: Possible Pitfalls of Implementing, Communicating, and Measuring Total Rewards
Topic 2: Metrics and Evaluation
Topic 3: Conclusions

Topic 1: Possible Pitfalls of Implementing,

Communicating, and Measuring Total Rewards

As with any major initiative with many steps, various people and departments involved, and
tasks that are designed and implemented over a long period of time, there are pitfalls that are
possible. Some of the more common ones are presented in this section in to bring
awareness to them.

1. Jumping in without the required research: Organizations are action-oriented and

tend to want to begin solutions before having done adequate research. However, without
the proper supporting data, wrong decisions can be made. It is important to take the
necessary time and have the money to gather the required data on which to base the
important decisions.

2. Not having support in the organization: Not only time, but also funding, will be
required for the staffing needed for the implementation of total rewards and for the
rewards themselves. Without the key leadership’s support within the organization, the
proper communication will likely not occur and the rewards will risk being revised or even
eliminated. The support of the organization needs to be confirmed at the beginning,

during the entire design and implementation process, as well as ongoing as the rewards
are being evaluated.

3. Not analyzing the costs: The cost of rewards for work performed is one of the largest
segments of an organization’s budget. Without properly analyzing the costs of the
rewards, separately and combined, decisions made about them cannot be effective. The
analysis of the costs will include not only the expense in today’s dollars, but also the cost
in the future.

4. Attempting to do too much too quickly: If too much is attempted at once, the process
can suffer. Each step is important and must be done properly because the success of the

implementation depends on the foundation of data gathered. The care taken in
communicating, obtaining -in, and concurrence can be determining factors toward the
success of the programs. Take the time needed for each step of the process, including
the essential steps of measurement and evaluation.

5. Not establishing objectives and metrics that are linked to business
objectives: The core of the total rewards model is that the rewards offered are aligned
to the business objectives. Unless program objectives and metrics are aligned to the
business objectives of the organization, success cannot be evaluated.

6. Having to take rewards away: If rewards are introduced and then taken away, it’s
worse than never having had them at all. Employees quickly develop a sense of

entitlement to rewards. Taking rewards away creates a sense that the organization is not
supporting them, is punishing them, or is not appreciating them. Take great care that
any reward implemented can be sustained. But if something has to be taken away, also
take great care in communicating why the decision was made to do so.

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7. Unexpected change in requisite KSAs and/or business plan: Due to changes in the
domestic or global economy, changes in the competition, expansion, mergers, or the
introduction of expanded products or services, changes for the organization may occur
that could result in the organization requiring a different set of KSAs in to be
successful. If this happens, the organization will need to assess if the current reward

programs will still attract, retain, and motivate the needed employees.
8. Communication issues such as errors in the messages or not understanding the

audience: The rewards programs are only as good as they are communicated and
administered. If the communication has errors, is not targeted to the audiences inside
and outside the organization, and not customized for those various audiences, the
programs may not have credibility and may not be seen as positive. Cultural differences
of countries must also be considered. One organization launched an expensive marketing
program for a new product only to learn that the colors it used in its advertisements were
viewed as vulgar in the country it was targeting. This can happen with the marketing of
reward programs too. Too many words and too much clutter are not effective; keep it

simple, especially on web sites.
9. Measuring the wrong things: Measuring the wrong things is worse than not measuring

at all, because key decision makers may make a correlation between the results the
wrong metrics are representing and the rewards programs. For example, if the level of
satisfaction with rewards alone is reported rather than engagement of the employee,
commitment to the organization, or level of satisfaction with various segments of the
rewards programs, the level of satisfaction increasing or decreasing overall may
encourage changes to the programs when they are actually effective.

10. Not measuring: Without a measurement, the effectiveness of the programs cannot be

determined. Not only are the programs to be measured, but key metrics that gauge the
relationship between the programs and the organizational goals are essential. When
measurements are taken and reported, it highlights that the program and the objective it
relates to are important. Without measurement, the necessary revisions cannot be
determined. Without measurements, money may be wasted on ineffective programs.

11. Using available data (not relevant): Using information that is already available may
be easy, but the data may not be relevant to the reward programs. The available data
may be measuring efforts, tasks, or results that are unrelated to the success of the
organization. For example, overall turnover of an organization may be measured, but

without knowing if turnover has increased or decreased in certain positions that the
rewards are attempting to affect, the data is not helpful. The turnover may, in fact, be a
positive outcome.

12. Measuring everything: When an organization does not really know what to measure, it
is likely to try to measure everything. This dilutes the communication of the right
measures, leads to decisions being based on irrelevant data, and wastes the time of
those collecting and reading the data.

Pitfalls Specific to Web Sites

Increasingly, organizations use a web site designed specifically for the communication of their
rewards. In addition to general rewards communication, many organizations make their total
rewards statements available online and update the site frequently for employees. Because the

web sites are such a frequently used method of communication, following are a few suggestions
to address any possible pitfalls specifically related to web sites:

1. Review the web site every time you update data: And conduct a complete review at
least once annually. Messages can become outdated quickly, and information that is
irrelevant or incorrect hurts communication.

2. Don’t be afraid to include as much information as you want: The goal is to be

inclusive of all the rewards while also keeping the site uncluttered and not overly

crowded. This can be achieved through proper design of the site, with links to additional
information.

3. Don’t forget to obtain employee input and feedback: Do not assume that what is
thought of by the authors or designers of the web site as being effective is necessarily so
for employees. Ask for feedback about the content, layout, ease of operation, and style of

communication.
4. Don’t think you are done at implementation: Just because a web site has been

launched does not necessarily mean it is complete. Daily and continuous monitoring must
be done, as well as the various revisions that will need to be made to the programs.

The possible pitfalls and suggestions discussed in this segment are just a few examples of what
organizations have found to be areas to plan against and the areas to plan toward. With the

proper attention to the details mentioned, and proper execution and monitoring, most of the
pitfalls can be avoided and the suggestions incorporated.

Topic 2: Metrics and Evaluation

Why Measure?

Steven Covey (2004) states that we must begin with the end in mind. He expresses that
“individuals, families, teams, and organizations shape their own future by first creating a mental
vision for any project, large or small, personal or interpersonal” (p. 152). Without the end in
sight, in some measurable way, we will not know when and if we have achieved our desired
results. The end in mind for total rewards is the accomplishment of organizational objectives,
thus the objectives of the organization provide the foundation for the key measurements of
success of the total rewards programs.

It is often heard in business that “What gets measured gets managed.” It is a way of calling
attention to what is important. It’s also common to hear that nothing implemented is complete
until evaluated to see if what has been intended actually works. If there are no measurement
devices in place, what was intended is unknown and evaluation of the success is only
speculative. A total rewards program, like any other program of significant expense and
potential, must demonstrate that it has made a difference toward the successful achievement of
the organization’s objectives. Unfortunately, with the rewards program, there may not always be
a direct line of cause and effect that can be drawn between the success of the organization and
its mix of rewards. This is because there are many other variables in the environment that might

affect the employees, their satisfaction, and productivity. Some of these intervening variables
could be coworkers and supervisors, the job itself, the equipment being used, reorganization,
downsizing, mergers, expansion, or outsourcing. Outside variables such as the economy, or
health or family issues could also play a part. While affecting employees, the variables have an
impact on the company itself and the accomplishment of its business strategy, as most are out
of the control of the employee and they could intervene or affect an exact evaluation of the total
rewards program (WorldatWork, 2007).

However, even with its limitations, “measures matter, both as a guide to management and as a
basis of performance management. Therefore, HR professionals must be able to measure how
success in total rewards relates to the strategy execution process” (Huselid, Becker & Beatty,
2005, p. 238). Measurement of results keeps efforts aligned with the intended results. To make
the process complete, metrics to report on the effectiveness of the programs need to be
designed and agreed upon, and systems put into place to track data measured and reported.

A sound performance measurement system for total rewards does two things. First, it improves
decision making about the current rewards by helping focus on those aspects of the organization

that create value, and it provides feedback to evaluate current strategies and predict the impact
of future decisions. Second, it provides a valid and systemic justification for resource allocation
decisions. Organizations allocate significant percentages of their revenues to rewards for the
work produced, so there is a need to show that the resources spent are contributing to the
organization’s success (Huselid, Becker & Beatty, 2005, p. 110).

Definition of a Metric

Metrics, also known as measures or key performance indicators, are simply a tool for assessing

the impact of a particular project or activity. Although these are often quantitative or numeric in
nature (improve sales by 20 percent, for example), they can also be qualitative (improve staff
satisfaction levels).

Metrics can include quantitative and qualitative measures, such as reducing turnover, reducing
time to hire, increased production or services, more satisfied employees, more satisfied
customers, ability to expand or introduce new products, or a number of organization-specific key

objectives of the business plan. The measurements could be historical averages, recent
experiences, projected future performance, internal reference points, or external reference
points. In either case, qualitative or quantitative, metrics provide clear and tangible goals for a
project, and criteria for project success. It is through the measurement and reporting of key
metrics that programs can be assessed, evaluated, and changed, if necessary, to improve
effectiveness.

Common Characteristics of Good Measurement Tools

Before deciding the right measures and setting up the systems to gather and report the data, it’s
important to verify the key objectives and the corresponding metrics with key leadership to
ensure agreement. It is also crucial to the process that the metrics link to the key objectives of

the organization and that the tools used to evaluate the programs are supported prior to
initiation of the programs. There must be shared agreement on the credibility and usefulness of
good measurement tools, which tend to have some common characteristics. Following are four
that many agree are necessary for the measurements to be effective (WorldatWork, 2007):

• are explicitly reflective of the objectives attempting to be achieved; send the right
messages to employees

• are tangible measures that are clear and unambiguous

• are credible; can be believed as being achievable and relevant to the success of the
organization

• are verifiable and accurate

Types of Measurements

Because measurements can be either quantitative (numbers) or qualitative (opinions, behaviors,
etc.), how can an organization decide which method would be more effective as a measurement
tool? Most organizations do not rely solely on one method or the other, but rather use some

combination of the two. Following is a description of each, and in all cases, “It’s not what you
think or feel, but what you have the facts to prove” (Huselid, Becker & Beatty, 2005, page 246).
Regardless of whether the measurement is quantitative, qualitative, or a combination, the data
must be valid and credible. Following are descriptions of the two measurement tools:

Quantitative: these are numerical representations of the outcomes (such as percentages,
ratios) and can be grouped into three major categories:

• direct impact such as reduced turnover, increased acceptance rates

• evaluative outcomes are conclusions that result from a total rewards design, such as
the organization’s competitive market position, its total rewards cost per employee, and

its rewards mix

• indirect performance outcomes may be partially attributable to a total rewards
program, such as revenue per employee, profit per employee, productivity, customer
retention

Qualitative: these measures answer questions, and gather opinions, intentions, or impressions
of individuals. While qualitative measurements may be more subjective than quantitative

measures, they are equally important in determining effectiveness. Examples of the questions
that qualitative measures answer are: Do the employees feel engaged in their work and the
organization’s objectives? Are employees satisfied with their rewards and, if so, which ones are
the most important to them? Have they thought about leaving the organization in a past certain
period of time? Qualitative measures will give you descriptions, not numbers.

Following are a sampling of possible quantitative and qualitative metrics:

Quantitative:

• percentage of exceptional candidates attracted for high-value positions

• percentage of retention of high performers in key positions

• percentage of eligible employees for promotion to key positions

• percentage success rate of external hires

• percentage productivity per employee

• cost of rewards per employee

• percentage enrollment/use of benefits

Qualitative:

• knowledge of rewards and value of them

• performance of new hires

• cultural studies

• description of employees’ feelings toward the total rewards program

Organizations will typically select more than one type of metric in to evaluate the success
of their total rewards programs toward the success of the organization.

Relationship of Metrics and Business Objectives

The key to an effective method of evaluating success is not necessarily if the metrics chosen are
qualitative or quantitative, or even a combination of the two. The key is if the metrics chosen are
indeed indicators that the rewards given are helping the organization achieve its business
objectives. It is important to consider “what relationship does the metric have to the success of a
business objective?” (Huselid, Becker & Beatty, 2005, p. 138). Relationships between total
rewards results are measured through the metrics (some of the above) and specific business
outcomes such as growth and exceptional customer service. In the next company spotlight

(Sepracor), the relationship between the organization’s business goals and the rewards and the
rewards metrics is illustrated.

Company Spotlight: Sepracor

The following example from the company Sepracor demonstrates how they aligned
their business strategy, rewards, and metrics.

Sepracor developed six strategic business goals:

1. Recruit the right talent
2. Measure the performance of talent
3. Reward and retain key talent
4. Develop talent
5. Optimize organizational and core leadership competencies for selection,

performance, and promotion
6. Improve operations, service delivery, and communication to optimize and

measure effectiveness of HR programs

The measurement scorecard and ROI framework was included in their business
plan and stated:

• what is important to measure

• measurement methodology

• baseline data/findings

• improvement goals (over specific time period)

• positive and negative results

Five key measures were identified to populate the scorecard and gauge year-over-
year improvements and plan for adjustments annually. They were:

• recruitment savings

• reduction in first-year attrition and turnover

• reward and retention of key talent

• external brand recognition

• employee commitment, innovation, and enthusiasm, with executive participation

Link to strategic goals: the five metrics would support the company’s growth,
enable the shift in focus from the development of pharmaceuticals to launching a
new drug, would allow doubling the size of the sales force while retaining and
motivating key research and development, commercial and functional talent.

(Source: DeTore, Jackson, Strategic HR Review, Sept/Oct, 2006)

Scorecards

Organizations are accustomed to scorecards, which provide a quick look at how they are doing in
certain important areas. Because of technological advancements, measurements have become
easier. Top leadership in particular, including boards of directors, want to know in a snapshot
how the organization is doing on its important drivers. They don’t have time to listen to long
presentations, read through long pages of reports, or analyze data. They want a few
measurements that will tell them quickly if there are any concerns or if everything is on track.
For the snapshot to be an effective one, it needs to show a balanced set of metrics and not, for
example, only financial measures. Some categories, such as financial measures, can have a
short-term success but long-lasting repercussions unless the steps to have the financial success

are balanced with other factors. For example, financial gains can be made by cutting staff or
eliminating services to customers. In the short term, the balance sheet would look good, but
soon the areas of employee and customer satisfaction would likely suffer. Over the past years

the concept of a balanced scorecard has been introduced (Manas & Graham, 2003, Kaplan &
Norton, 1992) to help key an eye on four important areas to provide a larger picture of needed
results. And even more recently, the communication through a scorecard for human resources
expands on the concept.

Total Rewards Scorecard

Each organization is unique and also has its own unique business objectives. Organizations
require specific KSAs and targets their population based on their needs. The population targeted

has a certain set of needs, wants, and preferences. Therefore, the total rewards scorecard,
combining the total rewards metrics and the alignment to business objectives, will differ for each
organization, and may be even further differentiated for each level and function within the
organization.

Federal Express, one of the largest package movers in the world, has a major hub of its
operations in Memphis, Tennessee. Every night hundreds of airplanes arrive containing

thousands of packages that must be unloaded and sorted to their next destination. The planes
are reloaded and depart again in a matter of hours. One of the position categories of the
evening’s operation is that of package movers/sorters. These are the employees who arrive to
work at midnight and work, on average, four to eight hours per shift. It is essential to the
success of the business to have reliable employees who are motivated each evening to
demonstrate their knowledge of the equipment they use and the codes for the locales of the
destination. They also need skills and abilities to lift, hand off, or otherwise direct the packages
so that they are loaded onto the appropriate outgoing plane.

The organization, located in a city rich with higher education institutions, discovered through
their research that college students who needed financial assistance were their targeted
employee population. They were able to successfully design a rewards package to attract, retain
for at least four years, and motivate employees, who were free to take classes during the day
and evening, having their school expenses covered. The employees typically move on after they
complete their undergraduate degrees, while some go on to graduate school. Although turnover
can, of course, be expected, the rewards package yields ready recruits at all times. Following is a

possible set of total rewards metrics aligned to the business objectives based on this
organization.

One of their core business objectives was to:

Reliably and economically ship packages around the world overnight

In to achieve this business objective, one set of requisite employee KSAs was:

Knowledge of the scanning equipment, city, state, and country codes. Skills and abilities to lift,
move, direct large numbers of packages in an efficient and quick manner. Ability to work

midnight to morning shifts of varying lengths, six or seven days a week if needed. Willing to
relocate to Memphis, Tennessee.

One segment of the population that would likely hold these KSAs:

College-bound populations with need for financial assistance with college expenses, physically
and mentally able to meet the bonafide occupational requirements (those KSAs essential to
demonstrate in the position).

Rewards designed by the organization to attract this segment:

• all tuition, books, fees, plus a housing stipend for undergraduate and post-graduate
degrees

• competitive base hourly wage

• pay for full shift even if work is completed in less than a full shift

• fully paid medical, dental, and life insurance

• subsidized dormitory-type housing available, if requested

Reward metrics to evaluate the success of the total rewards program:

• successfully move 100 percent of packages each evening at the central hub

• retain mover/sorter employees for an average of four years

• have 20 percent of current mover/sorter positions with qualified backup applicants

(Source: Based on author’s personal benchmarking visit to FedEx hub, Memphis, Tennessee, 2000. While

this information was true at the time, the reward package may have changed since. The situation is

presented for illustration purposes only.)

Table 5.1
Business Objectives and Total Rewards Metrics for Federal Express

Business Objective Total Rewards Metrics

With 100 percent reliability,
economically ship packages
around the world overnight

Successfully move 100 percent of packages each evening at the central hub

Retain mover/sorter employees for average of four years

Have 20 percent of current mover/sorter positions with qualified backup

applicants

In this case study of Federal Express (information obtained through the experience of

benchmarking the organization), it is clear that the organization was applying a strategic
marketing effort to their recruitment, retention, and motivation of employees required to fulfill
their business objective. The business objective was in clear sight to the leaders of the
organization, the required KSA were assessed, and they identified what rewards would likely
attract, retain, and motivate the employees with the needed KSAs to fulfill the objective. The
evaluation of the success was clearly identified with three metrics that related directly to the
business objective. More about the crucial step of evaluation follows.

Evaluating Total Rewards

After the steps of designing, implementing, communicating, and measuring are finished, the
evaluation of the program’s success needs to be done. What are the metrics telling the
organization? Are the rewards assisting the organization toward success? Are some rewards

more effective than others? Are some segments, levels, and functional jobs being recruited,
retained, and motivated while others are not? A common way of beginning the evaluation is
accomplished through a gap analysis. The metrics are measured against the target set. This is
why it is important for each metric to have a set desired value. The baseline measurements are
helpful in to see how much, if any, the target has moved, but the baseline is just the
beginning point. The desired metric will have a new value.

1. Gap analysis: This is a look at the metrics at the end of a preset period of time in
relation to the baseline set or period-over-period movement in the measurements. While

quantitative measures are more easily assessed than are qualitative ones, information
behind the movement in the quantitative measurements needs to be examined to see if
any intervening variables are at play. For example, if the acceptance rate has greatly
increased for key leadership positions, has there been reorganization in another local
company that might cause more applicants to be available? Qualitative measures also

need extra assessment as well. For example, if the level of satisfaction of the employees
has increased based on a survey, did other events happen around the time the survey
was taken to influence the results? For example, was there new communication about
rewards distributed? Was there a change in the key leadership of the organization? Was a
reorganization of the organization introduced? Metrics are certainly an indicator, but
should not be used without additional information about other variables that may affect
them.

2. Determination of needed changes: Changes are not necessarily recommended based
on the metrics. It is recommended that a team of a cross section of managers and
employees evaluate the data and make recommendations for changes, if any. Some

reward programs take time to cause a change in the results. Changing rewards can often
be confusing and time consuming. Sometimes the results that show up in the metrics are
due to intervening factors caused by events out of the realm of influence of the reward
programs. Careful evaluation and assessment needs to occur before any changes are
made.

3. Cost analysis: As in the implementation of the total rewards program, a cost analysis is
necessary again if changes are recommended. Reward programs and their respective
administration, implementation, and communication can be expensive. Prior to gaining
the support and approval of key leadership, the financial cost of the changes, as well as

any negative/positive costs, must be analyzed.
4. Key leadership -in: Any changes to the rewards programs will need the approval

and support of key leadership of the organization. Rationale based on the business
objectives is imperative. No change should be recommended only because it appears to
be or is thought to be needed. A sound business case must be made for the decisions.

5. Communication: A new communication plan will need to be designed to introduce any
changes in the rewards. When changes are made to plans, they may require more
communication than would a new plan. The reasons behind the changes will need to be
clearly articulated so that those receiving the news of the changes will not be left to

imagine on their own why the …