Read Chapter 1, “Strategic Compensation,” in the Strategic Compensation textbook.Download and read the SHRM Foundation Report: Implementing Total Rewards Strategies .Read the Case Study—“Competitive Strategy at Sportsman’s Shoes,” that is located at the end of the Chapter 1 reading keeping the questions below in mind.Navigate to the threaded discussion below and answer the following questions about the case study:Following Sportsman’s shift in competitive strategy, what are some considerations for the company’s human resource management practices? (p. 21)What kind of challenges will Sportsman face specifically in the area of compensation? (p. 21)Review the 1.1 Devotion and Scripture reading to answer the following: Sportsman’s shift from its current low-cost strategy to a differentiation strategy will likely necessitate even greater differentiation in pay structures as a result. Accordingly, what should Sportsman’s openly communicate about pay—should there be secrecy? In addition to supporting your response from a Biblical perspective, buttress your response with evidence from the literature review on the topic in the SHRM Report: Implementing Total Rewards Strategies: SHRM Foundation’s Effective Practice Guidelines Series, page 9.Provide a detailed post that demonstrates clear, insightful critical thinking. Your initial posting should be 200-300 words long.Your initial posting is to include at least the following two sources properly cited and referenced: (a) the Strategic Compensation textbook, and (b) the SHRM Foundation Report: Implementing Total Rewards Strategies at a minimum.Attached: Total Reward Strategy for review
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A guide to successfully
planning and implementing
a total rewards system
Implementing Total
Rewards Strategies
SHRM Foundation’s Effective Practice Guidelines Series
Implementing Total
Rewards Strategies
A guide to successfully planning and implementing a total rewards system
SHRM Foundation’s Effective Practice Guidelines Series
by Robert L. Heneman, Ph.D.
with assistance from Erin E. Coyne
This publication is designed to provide accurate and authoritative information regarding the subject matter covered. Neither the
publisher nor the author is engaged in rendering legal or other professional service. If legal advice or other expert assistance is
required, the services of a competent, licensed professional should be sought. Any federal and state laws discussed in this book are
subject to frequent revision and interpretation by amendments or judicial revisions that may significantly affect employer or employee
rights and obligations. Readers are encouraged to seek legal counsel regarding specific policies and practices in their organizations.
This book is published by the SHRM Foundation, an affiliate of the Society for Human Resource Management (SHRM®).
The interpretations, conclusions and recommendations in this book are those of the author and do not necessarily represent
those of the SHRM Foundation.
©2007 SHRM Foundation. All rights reserved. Printed in the United States of America.
This publication may not be reproduced, stored in a retrieval system or transmitted in whole or in part, in any form or by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the SHRM Foundation, 1800
Duke Street, Alexandria, VA 22314.
The SHRM Foundation is the 501(c)3 nonprofit affiliate of the Society for Human Resource Management (SHRM). The SHRM
Foundation maximizes the impact of the HR profession on organizational decision-making and performance by promoting innovation, education, research and the use of research-based knowledge. The Foundation is governed by a volunteer board of directors
comprised of distinguished HR academic and practice leaders. Contributions to the SHRM Foundation are tax deductible. Visit the
Foundation online at www.shrm.org/foundation.
For more information, contact the SHRM Foundation at (703) 535-6020 or www.shrm.org/foundation.
ii
Table of Contents
V
Foreword
VII
Acknowledgments
IX
About the Author
1
Implementing Total Rewards Strategies
2
Challenging Questions
3
Total Rewards: A Closer Look
5
Before You Begin: Assembling
the Right Project Team
6
Phase One: Assessment
8
Phase Two: Design
15
Phase Three: Execution
20
Phase Four: Evaluation
22
Conclusion
23
Appendix A: Industry Benchmark
Phone Survey
25
Sources and Suggested Readings
iii
Foreword
As a busy HR professional, you probably find it difficult to keep up
with the latest academic research in the field. Yet knowing which HR
practices have been shown by research to be effective can help you in
your role as an HR professional.
That’s why the SHRM Foundation created the Effective Practice
Guidelines series. These reports distill the latest research findings and
expert opinion into specific advice on how to conduct effective HR
practice. Written in a concise, easy-to-read style, these publications
provide practical information to help you do your job better.
The Effective Practice Guidelines were created in 2004. The SHRM
Foundation publishes new reports annually on different HR topics.
Past reports, available online at www.shrm.org/foundation, include
Performance Management, Selection Assessment Methods and Employee
Engagement and Commitment.
You are now reading the fourth report in the series: Implementing Total
Rewards Strategies.
For each report, a subject-matter expert with both research and
practitioner experience is chosen to be the author. After the initial
draft is written, the report is reviewed by a panel of academics and
practitioners to ensure that the material is comprehensive and meets the
needs of HR practitioners. An annotated bibliography is included with
each report as a convenient reference tool.
This process ensures that the advice you receive in these reports is not
only useful, but based on solid academic research.
Our goal with this series is to present relevant research-based knowledge
in an easy-to-use format. Our vision for the SHRM Foundation is to
“maximize the impact of the HR profession on organizational decisionmaking and performance, by promoting innovation, education, research
and the use of research-based knowledge.”
We are confident that the Effective Practice Guidelines series takes us one
step closer to making that vision a reality.
Frederick P. Morgeson, Ph.D.
Chair, Research Applications Committee
Associate Professor of Management
Michigan State University
Acknowledgments
The SHRM Foundation is grateful for the assistance of the following
individuals in producing this report:
Content Editor
Maureen J. Fleming, Ph.D.
Professor Emeritus
School of Business Administration, University of Montana
Reviewers
Mr. Rajiv Burman, SPHR
Vice President Human Resources, USA & Canada
Griffith Laboratories
Grace A. Dobson, SPHR
Benefits Manager
University of Maryland Medical System
Ingrid Fulmer, Ph.D.
Assistant Professor of Organizational Behavior
College of Management, Georgia Institute of Technology
Frederick P. Morgeson, Ph.D.
Associate Professor of Management
Eli Broad College of Business, Michigan State University
Project Manager
Beth M. McFarland, CAE
Manager, Special Projects, SHRM Foundation
Major funding for the Effective Practice Guidelines series is provided by
the Human Resource Certification Institute (HRCI®) and the Society for
Human Resource Management (SHRM®).
vii
About the Author
Robert L.
Heneman, Ph.D.
Robert Heneman is a recognized expert in the field of total rewards
strategy. His work has been reported in The Wall Street Journal, USA
Today, Money, Newsweek, and the Washington Post.
Dr. Heneman is a professor of management and human resources in
the Fisher College of Business at The Ohio State University. He has
been a strategic compensation consultant for more than 60 publicand private-sector organizations throughout the world—including
IBM, BancOne, Time Warner, Nationwide Insurance, Honda R&D,
Whirlpool, Worthington Industries, U.S. Government Office of
Personnel Management, and The Limited. He is the author of
three compensation books—Merit Pay: Linking Pay Increases to
Performance Ratings, Business-Driven Compensation Policies: Integrating
Compensation Systems with Corporate Strategies, and Strategic Reward
Management: Design, Implementation and Evaluation—and has
published more than 80 articles in professional journals.
Prior to joining the Ohio State University, he worked as a human
resource specialist for Pacific Gas and Electric Company. Dr. Heneman
serves on the editorial boards of a number of journals, including
Human Resource Management Journal, Human Resource Management
Review and Human Resource Planning. He has been selected for the
Outstanding Teacher Award in the Masters in Labor and Human
Resources Program numerous times by Ohio State students. He was
also honored as the first recipient of WorldatWork’s Distinguished Total
Rewards Educator Award. Dr. Heneman earned his Ph.D. in labor
and industrial relations from Michigan State University, and an M.A.
in labor and industrial relations from the University of Illinois at
Urbana-Champaign.
ix
Implementing Total Rewards Strategies
The right total rewards system—a blend of monetary
and nonmonetary rewards offered to employees—
can generate valuable business results.
Implementing Total Rewards Strategies
Implementing Total Rewards Strategies
Rothschild Gourmet Foods is a
small, privately owned company
based in the American Midwest.
It manufactures gourmet food
products such as jams, olive oil and
sauces, and has been in operation
for 13 years. As a result of a
company-wide change initiative,
Rothschild managed to boost
sales, slash controllable costs,
increase product quality, and raise
employees’ performance-appraisal
ratings. How did they do it? The
company changed the ingredients in
its total rewards system (Heneman,
DeSimone, Dooley & Jones, 2002).
In addition to offering flexible work
schedules and other nonmonetary
rewards, Rothschild skillfully
implemented an organization-wide
incentive plan based on corporate
performance.
Rothschild isn’t the only company
that has discovered firsthand the
power of a well-designed and
well-executed rewards program.
Indeed, as far back as 1996, an
article in USA Today (Neuborne,
1996) proclaimed a revolution
in the rewards that organizations
were offering employees. Instead of
awarding employees pay increases
and other incentives simply for
seniority, the so-called “New Pay”
linked rewards to achievement of the
organization’s strategic objectives.
HR professionals and other
managers began experimenting
with innovative types of rewards
in the workplace, including skillbased pay and goal sharing. And
they discovered that the right
total rewards system—a blend
of monetary and nonmonetary
rewards offered to employees—can
generate valuable business results.
These results range from enhanced
individual and organizational
performance to improved job
satisfaction, employee loyalty, and
workforce morale.
organizations put such plans
into action. And they have made
an interesting discovery: The
specific practices companies use to
implement total rewards programs—
that is, to design, deliver, executive,
and evaluate them—play a critical
role in the programs’ effectiveness.
This is true not only for the older,
traditional rewards plans (Heneman
& Werner, 2005) but also for more
recent systems (Beer, Cannon,
Baron, & Dailey, 2004).
Since the publication of the USA
Today article, organizations of all
stripes have continued exploring
innovative reward plans—particularly
with an eye toward aligning workers’
interests with company goals. Today,
this revolution manifests itself
in two ways. First, organizations
have moved beyond merely
experimenting with new reward
programs and have begun actually
using them (Lawler, Mohrman,
& Benson, 2001). Second, these
plans have shown increasing variety.
For example, reward systems now
routinely contain both monetary and
nonmonetary components—some of
which (such as recognition) seldom
saw use even as recently as a few
years ago.
Yet implementing total rewards
programs raises daunting challenges.
Practitioners who ignore these
challenges do so at their—and their
organizations’—peril. Drawing on
the findings of empirical research,
this report provides guidelines for
HR professionals and other senior
managers seeking to revise their
organizations’ total rewards systems
or design entirely new plans.
As interest in and use of total
rewards systems has intensified,
researchers have stepped up their
examination of the ways in which
Implementing Total Rewards Strategy
Challenging Questions
To implement a total rewards plan,
business leaders must tackle a broad
range of challenging questions—
everything from who will design
the plan and what types of rewards
it will include to how the plan will
be funded and under what business
conditions the plan is intended to
operate. When executives overlook
one or more of these questions,
they risk developing a plan that
delivers mediocre results once it’s
implemented—as the following three
stories reveal:
• The Profitless Profit-Sharing
Plan. A large chemical
manufacturer and distributor
developed a new profit-sharing
system for its employees. The
project team took great care
to use compensation principles
agreed upon by compensation
professionals and devoted a year
to designing the program. But
the team members neglected
to ask a crucial question: How
will the plan work during an
economic downturn? With much
fanfare, the company announced
the plan—and employees
eagerly anticipated their first
profit-sharing checks. As it
turned out, the organization’s
performance (as measured by
profit) proved dismal during the
plan’s first measurement period.
Employees received no bonus
checks, and their enthusiasm
gave way to resentment and
skepticism. The company
abandoned the plan. If it had
acknowledged the possibility of
an economic downturn and better
communicated the ramifications
of such a downturn for payouts to
employees, it might have avoided
the backlash.
• The Missing Appraisal System.
A federal government agency
enacted a pay-for-performance
plan that pegged individual
pay increases to employees’
performance as assessed by
a formal appraisal system.
However, the agency launched
the plan before putting an
organization-wide appraisal
system in place. Managers had
to hastily define performance
measures by which to assess
their employees’ contributions
and thereby determine salary
increases. This haphazard
development of measures led
to a highly subjective appraisal
system that employees saw as
unfair. Just one year after the plan
was implemented, the agency
eliminated it.
• The No-Go Goal-Sharing
Plan. In a heavily unionized
organization, top management
decided to initiate a new goalsharing plan that awarded cash
bonuses to employees based
on their facility’s business
performance. The plan was
piloted at one facility, and a
research team set out to track
the business performance of the
plant against that of a similar
facility not using the plan. The
team found that the performance
of the facility using the goalsharing plan exceeded that of the
other facility—suggesting that
the organization should roll out
the new plan at its remaining
facilities. But the implementation
team had not consulted union
leaders at these other plants on
the practical implications of the
goal-sharing program. And even
though goal sharing had proven
its mettle during the pilot, the
union opposed a company-wide
rollout.
Implementing Total Rewards Strategies
Total Rewards: A Closer Look
In recent years, the phrase
“compensation and benefits” has
given way to “total rewards”—which
encompasses not only compensation
and benefits but also personal and
professional growth opportunities
and a motivating work environment
(for example, recognition, valued
job design, and work/life balance).
What explains this broader view of
rewards? First, stiffer competition
in business has made it difficult
for cost-conscious organizations
to offer higher wages and more
benefits each year. Employers have
had to find alternative forms of
rewards that cost less to implement
but that still motivate employees
to excel. Second, organizations
have become much more strategic
in their management of human
resources (Barney & Wright,
1998)—including integrating their
various human resource functional
areas. For instance, some companies
now treat compensation and training
as rewards that must be managed
together rather than separately by
different HR teams. The “Total
Rewards Strategies” chart sheds
light on the wide range of strategies
that can make up a total rewards
program.
To implement total rewards
strategies successfully, organizations
must follow a disciplined process
(Ledford & Mohrman, 1993),
which is depicted in “Implementing
Total Rewards Strategies
Total Rewards Strategy
Definition
Compensation
Base pay
Wages and salaries
Merit pay
Base-pay increases based on employee performance
Incentives
Cash bonuses based on employee performance
Promotions
Base-pay increases based on potential to perform new job
Pay increases
Base-pay increases based on length of service
with the organization
Benefits
Health and welfare
Payment for injuries and illness both on and
off the job
Paid time off
Payment for vacation time or excused days
from work
Retirement
Payment for work no longer performed based
on length of employment
Personal Growth
Training
Skill development through on- or off-the-job
instruction
Career development
On-the-job coaching to develop skills
Performance management
Ongoing goal setting and feedback to
develop skills
“Total rewards”
encompasses not
only compensation
and benefits but
also personal and
professional growth
opportunities and
a motivating work
environment.
a Total Rewards Program: Four
Phases” (see below). The process
starts with assessment. In this
phase, the project team gathers
data to evaluate the effectiveness
of the organization’s current total
rewards system. The data guides
the design phase, during which the
team identifies and analyzes potential
reward strategies. In the execution
phase, total reward strategies are
put into operation. Last, the team
evaluates the effectiveness of the
strategies that have been executed.
Clearly, implementing a new total
rewards program is akin to carrying
out any large-scale transformation
initiative. Research on organizational
change can provide some guidance.
One study examined a 12-plant
manufacturing division of a
multibillion-dollar food-products
firm (Ledford & Mohrman, 1993).
The firm used a learning model
to guide the change effort. First,
it laid the foundation for change
by educating stakeholders about
the intervention, clarifying the
firm’s values, and diagnosing
organizational systems relative to the
values of the organization. Second,
the firm designed, implemented, and
evaluated changes to those systems.
The cycle was continually repeated,
as illustrated in the diagram below.
This process led to deeper learning
within the organization. To evaluate
the results of this learning model,
the researchers collected attitudinal
data at two points in time. Findings
suggested that the change initiative
had led to increases in job variety,
supervisory participation, influence
over planning and scheduling, and
other positive outcomes.
The following sections take a closer
look at how you and other HR
professionals in your organization
can take a total rewards initiative
through each of the four phases in
the implementation process.
Implementing a Total Rewards Program: Four Phases
Assessment
Evaluation
Design
Execution
Implementing Total Rewards Strategies
Before You Begin:
Assembling The Right Project Team
The most successful total rewards
initiatives are guided by a project
team from start to finish. By
assembling the right team, you
greatly boost your chances of success.
The following guidelines can help.
Naming the Project Leader
As your first step in assembling
the team, think about whom
you’ll designate as the project
leader. The best leaders are senior
HR professionals with project
management and total rewards
experience—they encourage ongoing
communication between the project
team and top management, and lend
credibility to the project.
Selecting Additional
Members
The team might include a consultant
from outside the organization.
This individual can bring technical
knowledge to the project, wisdom
gained from experiences with
similar organizations, and project
management skills. An outsider may
also have a more objective view of
the implementation process than an
insider.
In addition, the project team should
show employee representation. If
your organization has unionized
employees, then the team should
include a union official. By involving
the union in the project, you will
stand a much better chance of
gaining its support for proposed
total rewards strategies. Likewise, be
sure the project team includes one
or two high-performing and well-
liked employees from the nonunion
workforce. By representing the
interests of nonunion employees
who will be affected by the new
total rewards plan, these individuals
further increase your chances of
gaining buy-in from the workforce.
If you are concerned that the
presence of a nonunion employee
on the project team would create
conflict between the two pa …
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