Content area
Full Text
Total Rewards
>Improving or adopting a total rewards and accountability orientation into human resources practice can increase shareholder value by 16.5%. This article is intended to help companies cut through confusion about linking rewards to performance by focusing on the five key methods associated with the greatest increases in shareholder value. These key elements require a long-term outlook and must not only link to business strategy but also change to reflect adjustments in business strategy.<
Companies can experience a 16.5% jump in shareholder value by improving or adopting a select set of rewards and accountability practices, according to the Watson Wyatt 2001 Human Capital Index(R) (HCI).
To put this figure into perspective, picture two $1 billion companies that are highly similar in terms of research and development levels, industry and capital structure, but very different in terms of human capital management strategies. The difference in market value between the two companies can be as much as $160 million, based solely on variations in rewards and accountability practices, such as stock option coverage, synchronized pay and pay for performance.
Unfortunately, too few companies are realizing the full benefit that superior rewards and accountability practices can bring. The number of alternatives available to management when it comes to setting up reward systems is almost overwhelming, leading to confusion, inconsistency and a kind of paralysis in the face of poor results.
To help cut through the confusion, the following outlines the total rewards practices associated with the greatest increases in shareholder value, based on data from several recent Watson Wyatt studies, including the HCI research. The alternatives chosen most often by successful companies are described, both in terms of why they work and what companies must do to implement them properly. These practices include (1) linking pay to performance, (2) demanding that CEOs hold a significant stake in the company, (3) offering significant stock-based incentives across the board, (4) synchronizing pay and (5) not treating benefits as "fringe."
LINKING REWARD TO PERFORMANCE
The HCI study shows that companies that use a specific set of rewards practices enjoy 9% higher shareholder value. All but one of these practices fall under the category of "pay for performance." The most successful companies create reward systems that reward good...