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THE TALENT MANAGEMENT HANDBOOK CREATING A SUSTAINABLE COMPETITIVE ADVANTAGE BY SELECTING, DEVELOPING, AND PROMOTING THE BEST PEOPLE 2nd ed. Lance A. Berger Dorothy R. Berger

Chapter 27 Rewarding Your Top Talent

Mel Stark, Vice President

Mark Royal, Senior Consultant

Hay Group

REWARDING TOP TALENT IS, OBVIOUSLY, A CRITICAL ELEMENT OF EVERY ORGANIZATION'S talent management and business strategy. This fact has been made even more apparent in the recent past where the business recession has put a lot of stress on payrolls, salary increases, and other human resources expense and management concerns, such as retention.

While professional sports is not always the best place to look for compensation comparability and logic, given the “entertainment” nature of that business, all one needs to do to understand the importance of rewarding top performers and star power is to look how sports franchises actively manage their staffing and payroll in getting ready for each new season. You can argue with their generally perceived excesses but not with the concept of rewarding top talent—they do it to enhance their ability to outpace and one-up the competition, which is good business under any circumstances.

However, you cannot isolate the idea of rewarding your top talent from how you reward all others. There needs to be a “system,” an overarching philosophy as well as practices that articulate the how, what, and why of your organization's approach to rewards across the board. Rewards should be considered in the broadest terms and should include elements that can be assigned a monetary value as well as the intangible rewards that are provided, as both are key to retention of top talent. Many might argue, and rightfully so, that the intangible rewards actually carry more weight in talent retention. So, we'll start there, with an overview of rewards.

Total Rewards

When most people think of “compensation,” the first thing that comes to mind is what they see each payroll period: their net paycheck. Beyond that, some may also include any variable-pay opportunity (i.e., incentive or bonus) they may earn. While these amounts are real and tangible, the concept of reward is much more far-reaching.

“Reward” signifies different things to different people, and its meaning depends on the context in which it's used. Consider, for instance, those “Reward” posters on old TV Westerns. In the context of business, however, while things can often feel like the Wild West, rewards are traditionally interpreted as an employee's pay (base salary, incentives, or bonuses) and the value of benefit plans. Yet the concept of “total rewards” goes beyond these tangible elements. Total rewards also includes intangible elements that are harder to see and touch but are real enough to affect an employee's level of engagement and satisfaction while contributing to attraction and retention of key staff. A working definition of rewards is “anything that the organization provides that is of perceived value to employees.” So, in the spirit of rewarding your top talent, you have to be aware of and pull on all the available levers to maximize your offering and the messages you want to send.

Figure 27-1 highlights these distinctions. Base salary forms the foundation for all other tangible reward elements. Beyond that, there can be bonuses, long- and short-term incentives, and, of course, a variety of considerations that contribute to the benefits plan. The message here is to move beyond the obvious, yet important, elements of pay, benefits, and perquisites to explore all the intangible aspects of an employee's work experience that compose an organization's total rewards offerings. When properly orchestrated, these offerings can be synergistic and a true competitive advantage that cannot be easily duplicated. As Herb Kelleher, founder of Southwest Airlines, has said, “It's the intangibles that are the hardest things for a competitor to imitate. You can get airplanes, you can get ticket counter space, and you can get baggage conveyors. But the spirit of Southwest is the most difficult thing to emulate. If we ever do lose that, we will have lost our most valuable competitive asset” (Jensen, McMullen, and Stark 2007).

Figure 27-1 Total Reward Elements

You cannot effectively consider or make good on how best to reward your top performers if you're only looking at the most obvious pieces of the puzzle. It will take more work and creativity, and it will demand more of the organization, its managers, and HR leaders. But isn't that comparable to what you expect of your top performers?