Boosting engagement and retention by aligning rewards with employee preferences

Darryl Roberts, Ph.D., Senior Consultant, Towers Watson

After two years of layoffs, salary freezes and shifting benefit costs, employers are worried about attracting, retaining and engaging top talent now that the economy is improving. In fact, 52 percent of U.S. employers say it’s already difficult to attract employees with critical skills and 25 percent say it’s hard to retain top performers according to the 2010 Towers Watson Global Talent Management and Rewards Survey.

Given these emerging challenges and the ongoing need to contain costs, it’s imperative that employers invest precious dollars in rewards that resonate with employees and prospects. Unfortunately, many organizations are using insufficient data or old intelligence to determine employee preferences, so they’re spending money on programs that have little impact on retention or engagement.

“There’s a gap between the rewards many employers are offering and what employees want,” says Darryl Roberts Ph.D., senior consultant for Organizational Surveys and Insights at Towers Watson. “By listening to their employees and giving them a say in determining their rewards, employers can boost engagement, retention and productivity without increasing expenditures.”

Smart Business spoke with Roberts about the current state of employee rewards and how employers can optimize expenditures by delivering programs that meet employee preferences in a cost-effective way.

What are the challenges facing employers now that the economy is improving?

Our research shows significant gaps between what employers believe is most important to employees and what employees actually want. And given the recent economic obstacles, many HR and business executives are out of touch with employee preferences. For example, 86 percent of the U.S. employees surveyed in the 2010 Towers Watson Global Workforce Study cited improved work-life balance as a retention factor, yet relatively few employers offer flexible schedules despite the often-modest cost of instituting a program. And 62 percent of employees said rapid skill development contributes to a preferred work situation yet only 33 percent of employers said it is available in their organizations.

The good news is employers don’t have to increase rewards spending if they just listen to their employees and recalibrate their current expenditures.

How can employers determine employee preferences and optimize rewards expenditures?

The goal of Total Rewards Optimization (TRO)  is to help organizations generate the highest possible perceived value for rewards at the most economical cost. We start by conducting a conjoint survey that determines employee preferences by testing a number of specific reward options. Throughout the process, employees are forced to make trade-offs and prioritize rewards, not look at each reward separately. For example, employees may be asked if they prefer a higher employer 401(k) contribution and less training, or a lower employer 401(k) contribution and more training. Our experience shows that employees understand the challenges employers face and are capable of making prudent choices if they’re brought into the conversation. Next, we analyze the data to identify rewards portfolios that have the highest impact on desirable employee behaviors while delivering the greatest ROI. The process also highlights the best rewards mix at different expenditure levels because there’s not necessarily a one-to-one relationship between cost and employee perception. Some rewards may be less costly but highly valued by employees, while others may be expensive but not deliver enough value to justify their expense.

What else will employers discover through the TRO process?

TRO provides employers with valuable information to calibrate rewards by answering these critical questions.

• What is the right level of total investment in employees? Is the organization spending the right amount? Are there opportunities to do more with less? Conversely, is there an economic case to increase rewards spending?

• Which rewards enable the business plan by driving desirable employee behavior? Organizations may be spending too much on some rewards but not enough on others, and may also have opportunities to modify some rewards programs in ways that improve ROI.

• How should rewards be tailored by employee segment? Employees value different things at different points in their careers or employment situation. For example, early-career employees may place a higher value on learning and development while more experienced workers may value larger 401(k) matches. And employers may need to tailor programs to attract and retain employees with scarce skills such as engineers or IT professionals.

How has TRO helped companies optimize reward expenditures?

When a manufacturing company faced unsustainable pension and benefits costs, it was able to launch pension program changes for new hires, redesign retiree medical and change the distribution of stock options to lower expenses with minimal impact on active employees. A health care provider found that an improved work environment, paid time off for training and more predictable work schedules were more valuable than higher pay and subsequently reduced the annual turnover of clinical staff by 25 percent. And when a large grocery chain faced intense competition and margin pressures, they instituted a program that reduced reward expenditures by $50 million while reinforcing employee behaviors that increased customer loyalty, without increasing employee turnover.

TRO helps employers better invest valuable dollars in rewards that support their business plan.

Darryl Roberts, Ph.D., is a senior consultant for Organizational Surveys and Insights at Towers Watson. Reach him at (949) 253-5229 or [email protected]